NZD/USD trends lower after Trump victory and weak New Zealand employment data

• NZD/USD falls after Trump wins US presidential election, boosting USD.
• The New Zealand Dollar is further hampered by weak NZ labor market data showing rising unemployment.
• NZD/USD could fall further if the policy trajectories of the two central banks diverge.

NZD/USD is trading down more than three-quarters of a percentage point in the 0.5940s as the US Dollar (USD) strengthens across the board following the announcement that Republican candidate Donald Trump won the US presidential elections

Additionally, the Republican party won majorities in both the US Senate and the US Congress. This will make it easier for Trump to implement his dollar-positive economic agenda, which includes higher tariffs on foreign imports and a general tax reduction.

The reason Trump’s policies are bullish for the Dollar is because they will likely lead to increased spending, higher prices, and rising inflation. This, in turn, will likely delay the Federal Reserve (Fed) in reducing interest rates. Higher interest rates attract greater foreign capital flows, so they are positive for the US Dollar.

New Zealand (NZ) employment data was released as votes were being counted in the US and showed the unemployment rate rose to 4.8% in the third quarter from 4.6% in the second quarter. That said, the result was less than the 5.0% expected.

NZ employment change data decreased by 0.5% in the third quarter, which was less than the expected 0.4% decline. The Labor Cost Index, a measure of wages, was also below expectations, recording an increase of 0.6% versus 0.7% expected.

The data is unlikely to change the monetary policy outlook of the Reserve Bank of New Zealand (RBNZ), a major driver of the NZD. Michael Gordon, senior economist at Westpac NZ, attributed the generally weak labor market and rising unemployment to, “more young people exiting the workforce, with study as a way out.”

Inflation in NZ eased to 2.2% in the September quarter, bringing it back within the RBNZ’s target range of 1-3%. This led the central bank to reduce its official cash rate (OCR) by a “double dose” of 50 basis points (bps) (0.50%) to 4.75% at its October meeting. This was the bank’s second consecutive rate cut and was expected.

Given the weakness of the NZ economy – Gross Domestic Product (GDP) fell 0.2% in the second quarter – and a general long-term decline in demand from its largest trading partner, China, the RBNZ is expected to implement more interest rate cuts to stimulate growth. This will likely have a negative impact on NZD/USD going forward, particularly as the pace of Fed cuts slows due to Trump’s inflationary policies.