Australia and New Zealand will probably stand out from the crowd next year as interest rates stay at their respective record lows of 1.50% and 1.75% while rates are raised in some other advanced economies. This divergence may contribute to the Australian dollar weakening from US$0.77 to around US$0.70 next year and the New Zealand dollar staying close to U$0.68. GDP growth and inflation in both economies just won’t be strong to warrant higher interest rates. And the high and rising levels of household debt provide a clear incentive for policymakers to err on the side of caution as they worry how heavily-indebted households will cope with higher borrowing costs.
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