Mitsubishi UFG Notes Australian, New Zealand Dollars Gains after Australia's Jobs Report Reinforces Policy Divergence

07:59 AM EST, 11/13/2025 (MT Newswires) -- The biggest movers early Thursday have been the Australian (AUD) and New Zealand dollars (NZD), said MUFG.

The Australian dollar extended its advance following the release of the stronger-than-expected Australian employment report for October, wrote the bank in a note to clients. It has resulted in the AUD/NZD rate rising above the 1.1600 level for the first time since September 2013.

The pair has risen sharply by just over 9% since the low point in April after United States President Donald Trump's "Liberation Day" tariffs announcement, driven mainly by expectations that yield differentials between Australia and New Zealand will continue to widen, stated MYFG. The two-year swap spread between Australia and New Zealand has widened by around 120bps over the last five to six months.

The widening yield differential in favor of Australia has been reinforced overnight Wednesday by further evidence that the labor market in Australia is proving more resilient than expected, pointed out the bank. Employment increased strongly by 42,200 in October, which was the biggest monthly increase since April. It was driven by a 55,300 jump in full-time employment that was only partially offset by a 13,100 drop in part-time employment.

It compares with average employment growth over the last six to 12 months of between 14,000 and 19,000. At the same time, the unemployment rate dropped by 0.2ppts to 4.3% from the cyclical high of 4.5% recorded in September.

The developments support the Reserve Bank of Australia's recent view that labor market conditions are a "little tight," added MUFG. The RBA expects the unemployment rate to stabilize around 4.4%-4.5% with only modest loosening ahead.

It is one reason why the RBA has become cautious over continuing to lower rates further, accoridng to the bank. The RBA left rates on hold last week at 3.60% which is viewed as "mildly restrictive" and close to neutral.

Recent developments, including the stronger Q2 consumer price index report, have prompted the Australian rate market to price out further rate cuts. While the RBA hasn't stated clearly that the rate cut cycle is over, the Australian market is no longer confident that rates will be lowered further in the year ahead, providing support for the Australian dollar, noted the bank.

There are currently only around 9bps of cuts priced in for next year.

In contrast, the Reserve Bank of New Zealand has already been more aggressive in cutting rates, lowering its policy rate by a further 50bps last month to 2.50% while leaving the door open to further easing. The MPC noted last month that it "remains open to further reductions in the OCR as required for inflation to settle sustainably near the 2% target midpoint."

Another weak labor market report from New Zealand for Q3, revealing the unemployment rate rose to a fresh cyclical high of 5.3% has reinforced expectations for further RBNZ easing as soon as this month, said MUFG. The New Zealand rate market is currently pricing in a small chance of a back-to-back 50bps cut.

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