WELLINGTON (Reuters) - New Zealand’s jobless rate edged lower in the first quarter, taking it close to the decade-low reached last year, but sluggish wage growth and a drop in employment indicated a softer growth outlook, sending the currency sliding.

FILE PHOTO: Construction workers unload equipment at a building site for a residential apartment block in central Wellington, New Zealand, July 3, 2017. REUTERS/David Gray

After Wednesday’s release of job market data, the New Zealand dollar dropped 0.5 percent to $0.6638 from around $0.6675, as some in the market factored in an increased probability of an interest rate cut.

The currency later settled at $0.6648.

The chance of a cut in the official cash rate (OCR) has increased in recent months, as the Reserve Bank of New Zealand grapples with the prospect of a weak economic momentum amid slowing global growth.

The RBNZ, which has a policy meeting on May 8, in March indicated its next move was more likely to be a cut in the OCR than a hike.

Data from Statistics New Zealand showed the unemployment rate slipped to 4.2 percent in January-March, just below the previous quarter’s 4.3 percent, and in line with expectations of economists polled by Reuters. The jobless rate dropped to a 10-year low in the quarter ending in September 2018.

But the drop in the jobless rate stemmed from fewer people participating in the workforce, as the participation rate fell to 70.4 percent compared to a Reuters poll expectation of 70.9 percent.

The number of jobs dropped 0.2 percent, in contrast to the poll’s forecast of a 0.5 percent increase.

ANZ senior economist Miles Workman said the data is consistent with the softer growth outlook that implicitly lies behind the RBNZ’s dovish position.

In a note, Workman said he continues to expect a rate cut in August, “with next week’s monetary policy statement to set the stage”.

Other analysts have said they expect a rate cut at next week’s meeting.

New Zealand business sentiment remained gloomy in April, providing further cause for the RBNZ to consider rate cuts.

SOFTENING EMPLOYMENT

The employment rate, which reflects the number of people employed as a share of the working-age population, fell to 67.5 percent in the March 2019 quarter from 67.8 percent three months earlier.

This reflected a fall in the number of people employed and a rise in the working-age population, Stats NZ said.

“New Zealand has seen a softening of economic growth as measured by gross domestic product over the last six months, and we now are seeing that softening come through the employment rate,” labor market and household statistics senior manager Jason Attewell said in a statement.

Wages grew 0.3 percent from the previous quarter, compared to a Reuters poll expectation of 0.5 percent, and annual growth was 2.0 percent versus a prediction of 2.1 percent.

“We expect further increases in wage growth to be gradual, with the peak in capacity pressures now behind us,” said ANZ’s Workman.