SYDNEY/WELLINGTON • The Australian dollar took a knock yesterday as data showed another steep fall in jobs, while the New Zealand dollar weathered figures showing the economy shrank by the most in three decades last quarter as lockdowns began to bite.
The Australian dollar slipped 0.4 per cent to US$0.6857, and further away from the recent 11-month top at US$0.7069. Support lies around US$0.6835 and US$0.6777.
The New Zealand dollar eased 0.3 per cent to US$0.6436, to leave behind its recent five-month peak at US$0.6580. It has support at US$0.6381.
The Australian report showed 227,000 jobs were lost last month, more than twice the 100,000 expected, while the unemployment rate jumped to 7.1 per cent from 6.4 per cent.
A glimmer of hope was that hours worked had fallen only 10 per cent between March and May, when the Reserve Bank of Australia (RBA) had feared they could drop twice as much.
"The fall is less than we anticipated, and provides further evidence that there is upside risk to the official forecasts for a 10 per cent fall in gross domestic product in the first half of the year," said BIS Oxford Economics' chief economist Sarah Hunter.
"Although it's early days, there are signs that May will be the worst month for the labour market. But the scale of the job losses means it will likely be years before the labour market has fully recovered."
Market analysts at National Australia Bank (NAB) expressed shock at the number of people who left their jobs or stopped looking.
"Over the past two months, a massive 835,000 people have lost their jobs," they told clients. That figure is roughly double the population of Canberra.
"Many of those who lost work also left the labour force," NAB added, noting that the labour force participation rate fell to the lowest level since 2001.
The RBA has already acknowledged that grim outlook and committed to keeping interest rates near zero for some years to come, limiting the impact on bonds.
Three-year bond futures were just half a tick higher at 99.730, implying a 0.27 per cent yield.
Data from New Zealand showed the economy shrank by the most since 1991 in the first quarter as much of the country was shut down late in March to combat the coronavirus outbreak.
From a year earlier, the economy shrank 0.2 per cent - the first annual contraction since 2009.
The government has pledged NZ$62 billion (S$55.7 billion) of fiscal support to help revive domestic demand and protect jobs, while the central bank has slashed interest rates and embarked on quantitative easing to drive down borrowing costs.
"We are expecting the bulk of the economic impact to hit in the second quarter," said Ms Jane Turner, senior economist at ASB Bank in Auckland, who tips a 17 per cent contraction.
"The labour market is set to deteriorate markedly with unemployment set to rise above 8 per cent. The weaker labour market and job security concerns will likely result in many households becoming more cautious about spending over the coming year."
Bank analysts predict the economy will contract by as much as 19 per cent in the second quarter, confirming New Zealand's first recession since the second half of 2010.
"We suspect consumption could fall by nearly 30 per cent in Q2," said Mr Ben Udy, an economist at Capital Economics.
"What's more, while business confidence is rebounding, it remains consistent with deep declines in investment. We don't expect exports to recover until late 2021," he warned.
Still, the Reserve Bank of New Zealand has already planned for that by cutting rates to record lows and launching a sizeable bond buying programme.
Swaps show investors are still wagering on another cut of 25 basis points, likely next year, and perhaps a shift to negative rates.
The first-quarter contraction was driven by service industries, particularly hospitality as international travel stopped, the New Zealand statistics agency said.
REUTERS, BLOOMBERG, AGENCE FRANCE-PRESSE