SYDNEY, Feb 1 (Reuters) - The New Zealand dollar slipped on Wednesday after data showed signs of loosening in the tight labour market, reinforcing wagers that the central bank might not have to be as aggressive as previously projected.
The kiwi dollar fell 0.3% to $0.6420, after dipping 0.5% overnight and away from its recent top of $0.6530. It has support around $0.6390.
Official data showed New Zealand's jobless rate edged up to 3.4% last quarter, countering expectations from economists that it would stay steady at 3.3%. The Reserve Bank of New Zealand had forecast the unemployment rate at 3.2%.
"With higher interest rates now weighing on the economy, we think the jobs market has reached a turning point," said Michael Gordon, acting chief economist at Westpac NZ.
That, combined with data last week showing inflation has peaked in the country, reinforced expectations that the RBNZ will step down to a 50 basis-point hike later this month, with markets betting they would stop short of raising rates to 5.5% as previously projected.
New Zealand two-year swap rates dived 11 basis points to just 4.875%.
The Aussie was at $0.7038 on Wednesday, after hitting a low of $0.6984 on a surprisingly soft retail sales report.
It was buoyed by a risk-on rally overnight when the Fed's preferred wages gauge, the U.S. employment cost index, showed a 1% rise last quarter, its smallest increase in a year.
The U.S. central bank is expected to raise interest rates by 25 basis points later on Wednesday, but markets are jittery about any hawkish tone the Fed Chair Jerome Powell may adopt at his press conference after the rate decision.
The expectation of a less hawkish RBNZ has prompted analysts at Barclays to see more room for appreciation in the Aussie dollar against the kiwi.
"With China's reopening yet to be fully priced in by global markets and hawkish risks ahead of next week's RBA meeting and beyond, we see more scope for AUD upside both outright versus the dollar and also versus NZD," said analysts at Barclays.
"The correction of a still large terminal rate gap between the two central banks points to further gains for AUD versus NZD, in our view." (Reporting by Stella Qiu; Editing by Subhranshu Sahu)
