Even though we expect both the Australian and New Zealand dollars to weaken further, to around US$0.60 and US$0.55 respectively, this won't be enough to prevent GDP growth in both economies from slowing to 2.0% this year and staying there next year too. The weaker exchange rates are cushioning the blow from the plunge in export prices, but they won't outweigh the drag on overall GDP growth. With the boost to inflation from the weaker currencies also likely to be smaller than in the past, the combination of weak growth and low inflation will result in interest rates in both Australia and New Zealand being cut by more than the markets expect, to 1.5% and 2.0% respectively.
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