The New Zealand dollar fell after unemployment data for the June quarter surprised on the upside after surprising on the downside last quarter.
Investors are scratching their heads but said the 6.8 per cent unemployment rate in the June quarter is consistent with a slow recovery and increased the chance that the Reserve Bank of New Zealand (RBNZ) will pause in its next interest rate review or the one after that.
The drop in the unemployment rate from 7.1 per cent to 6 per cent in the March quarter had been hard to reconcile.
The NZ dollar fell sharply on today's data from US73.57c to US72.75c but quickly consolidated and was at US72.95c by 5pm. It was US73.52c at 8am compared with US73.44c at 5pm yesterday.
"There was a big reaction immediately and then it stabilised quickly," said Imre Speizer, senior currency strategist at Westpac.
He said the headline grabbing unemployment number raised questions about the quality of the survey and caused people to question if the RBNZ would hike next month, but the detail in the survey was positive.
"It has increased the chances of a pause next month but we still think they will go," he said.
To go in two quarters from an unemployment rate of 7.1 per cent to one of 6.8 per cent was more in line with history and consistent with other data on the economy.
But the central bank was not getting traction with its monetary policy tightening because yields in the wholesale money market have fallen, rather than risen.
The two-year swap rate has fallen around 40 basis points since the RBNZ started tightening. It fell around five to seven basis points to 6.39 per cent today.
The NZ dollar also fell against the Australian dollar to be A79.68c by 5pm from A80.16c at 8am and A80.49c at 5pm yesterday.
It was at 0.5544 euro from 0.5558 yesterday, and 62.83 yen from 62.72.
The trade weighted index fell to 67.37 by 5pm from 67.68 at the same time yesterday.