The market focused on the fall in the participation rate from 70.9 per cent to 70.4 per cent and the 0.2 per cent fall in employment in the quarter – the market had been expecting a 0.5 per cent increase.
"It was a pretty decent headline rate but, as often happens, the devil was in the detail," says Mike Shirley, a dealer at Kiwibank.
Kiwibank's economists say they don't think the numbers will add much to the Reserve Bank's deliberations ahead of next week's monetary policy statement but they're picking a 25 basis point cut in the official cash rate to 1.5 per cent.
Shirley says the market is now pricing in a 60 per cent chance of an OCR cut next week, up from 40 per cent yesterday.
The New Zealand two-year swap rate sank to 1.6095 per cent from 1.6687 yesterday while the 10-year swap rate fell to 2.1650 per cent from 2.2250.
Shirley says the market is now awaiting the US Federal Reserve's latest verdict on its interest rate settings, due at 6am tomorrow, New Zealand time. Fed chair Jerome Powell will hold a press conference half an hour later.
"No change is expected but it will very much be a case of focusing on the language. The market will be looking for insights into future direction," Shirley says.
The Fed is grappling with a similar conundrum that is besetting central banks around the world, including the Reserve Bank of New Zealand. Unemployment is low but so is inflation – New Zealand's inflation rate of 1.5 per cent is below the central bank's 2 per cent target.
The New Zealand dollar was trading at 94.27 Australian cents from 94.68, at 50.98 British pence from 51.21, at 59.29 euro cents from 59.53, at 74.13 Japanese yen from 74.38 and at 4.4760 Chinese yuan from 4.4974.
