RBNZ to cut today and keep dovish tone - UBS

UBS on the RBNZ decision at 0200 GMT

The New Zealand jobs report was unexpected strong with unemployment falling to an 11-year low. But as we know, low unemployment is hardly a recipe for a hawkish central bank in 2019.

While the labour market data was a hawkish surprise, this is the volatile nature of the HLFS and will be discounted, to a degree. We still expect the RBNZ to cut the OCR by 25bp to 1.25% tomorrow (& again in Nov) on account of the downside risks (both global and domestic) to the outlook, rather than the current state of the economy/labour market. While the labour market data may tone down the dovish language a touch, we still expect the forward-guidance, and OCR path, to leave the door open for further easing.

As an aside... New Zealand's government raised the minimum waged to $17.70 per hour in April. Unemployment hit 3.9% in yesterday's report, down from 4.2% in May. Labor force participation is also 70.4% compared to 62.9% in the US.