• AUD/NZD is expected to extend recovery above 1.0950 despite firmer NZ Trade Balance data.
• A higher NZ labor cost index will escalate inflation projections further.
• Weaker Australian monthly Retail Sales might ease some troubles for the RBA.

The AUD/NZD pair has displayed a sharp recovery move after a gap down open to near 1.0926 in the early Asian session. The cross is picking strength despite the release of the upbeat New Zealand Trade Balance data.

Exports in December month improved to $6.72B versus the former release of $6.34B while Imports trimmed to $7.19B from the prior release of $8.52B. The annual Trade Balance landed at -14.46B (New Zealand Dollar) against -14.98B (NZD) released earlier.

For further action, investors will keep an eye on the New Zealand Employment data, which will release on Wednesday. The Employment Change (Q4) is expected to drop to 0.7% from the former release of 1.3%. While the Unemployment Rate is seen unchanged at 3.3%. The New Zealand economy is failing to generate significant employment opportunities amid higher interest rates by the Reserve Bank of New Zealand (RBNZ).

Apart from that, the labor cost index data will hog the limelight. The employment bills index (annual) is expected to escalate to 4.45 from the former release of 3.8%. And, the quarterly data is seen higher at 1.3% against 1.1% in the prior release. An increment in the labor cost might keep inflation pressures toward the hill side as households would be with more liquidity for disposal.

It is worth noting that the New Zealand economy has not shown any sign of inflation softening as the annual Consumer Price Index (CPI) (Q4) escalated to 7.2% from the consensus of 7.1% on an annual basis and a further extension in the retail demand will escalate the inflationary pressures.

On the Aussie front, investors are keeping an eye on Tuesday’s monthly retail sales data, which is expected to display de-growth of 0.3% from the prior release of 1.4%. This might trim troubles for the Reserve Bank of Australia (RBA), which is struggling the cap the stubborn inflation in the Australian economy.