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The recent divergence of the Australian and New Zealand dollars has been driven by swings in relative interest rate expectations, but we doubt it will be sustained. (See Chart below.) We think the markets are right to start pricing in rate cuts in New …
21st May 2015
The Reserve Bank of Australia and the Treasurer appear to be playing tennis with the economy. RBA Governor Stevens has already cut interest rates to 2.0% and hinted that he would like fiscal policy to provide more help. In last week’s Budget, Treasurer …
15th May 2015
The Reserve Bank of New Zealand’s (RBNZ) plan to tighten its macro-prudential polices in order to tame house price inflation in Auckland could be another sign that it is preparing the ground for a rate cut. As such, it supports our view that interest …
13th May 2015
The 2015-16 Budget will quash any talk of a credit rating downgrade, but won’t give the economy a much-needed helping hand. The decision by Treasurer Joe Hockey not reduce the coming fiscal squeeze increases the pressure on the Reserve Bank of Australia …
12th May 2015
Last week’s news that the unemployment rate in New Zealand is not falling as widely expected and is rising as we thought it might has added to the pressure on the Reserve Bank of New Zealand (RBNZ) to follow its Australian counterpart in cutting interest …
8th May 2015
While Tuesday’s Federal Budget may well live up to the “dull” label slapped on it by the Prime Minister, the failure to provide any extra support to the economy will be disappointing. This would place an even greater burden on the Reserve Bank of …
7th May 2015
The 2,900 drop in Australian employment in April brought to an end a strong run for the country's labour market and pushed up the unemployment rate. Although we would be wary of reading too much into monthly changes in such a volatile data series, we do …
The cut in interest rates to a new record low of 2.00%, from 2.25%, announced by the Reserve Bank of Australia (RBA) today is unlikely to be the last in this cycle. Our forecast that both GDP growth and underlying inflation will be weaker this year than …
5th May 2015
The Reserve Bank of Australia can’t have its cake and eat it. The only way to ensure that the Australian dollar weakens, which would support the real economy, is to reduce interest rates further, but this would boost the already hot housing market. We …
1st May 2015
Although the Reserve Bank of New Zealand (RBNZ) once again left interest rates unchanged today, theshift from a neutral policy bias to an implicit loosening bias supports our view that interest rates willbe cut from the current 3.5% to 3.0% by the end of …
30th April 2015
The recent stronger-than-expected data means that a cut in interest rates at the Reserve Bank of Australia’s (RBA) policy meeting on Tuesday 5 th May is no longer a done deal. But we still think the chances of a cut, to 2.00% from 2.25%, are greater than …
28th April 2015
While we agree that the Reserve Bank of Australia (RBA) is right to conclude that monetary policy is less effective now than before the global financial crisis, we disagree with suggestions that this means there's little point in cutting interest rates …
24th April 2015
The stability of the various measures of underlying inflation in the first quarter suggest that price pressures aren't as weak as we thought. Nonetheless, this is unlikely to prompt the Reserve Bank of Australia to abandon its plans to cut interest rates …
22nd April 2015
The Australian economy appears to have shot out of the blocks at the start of the year. It's possible that it grew by about 1.0% q/q in the first quarter, which would be twice as fast as the rate seen late last year. Retail sales growth has accelerated, …
21st April 2015
The petrol-related plunge in headline CPI inflation, to a 15-year low of 0.1% in the first quarter from 0.8% in the fourth quarter, will grab all the headlines, but it is the weakness of underlying inflation that will influence the future path of policy. …
20th April 2015
We expect the consumer price data for the first quarter to show that headline inflation fell to 1% in Australia and to almost zero in New Zealand. Since these falls are due to the one-off effects of the drop in petrol prices, they won’t permanently reduce …
17th April 2015
Australian employment rose by 37,700 in March, adding to signs that the economy has made a reasonably healthy start to the year. However, we doubt this will last for long. With GDP growth set to slow during the rest of the year, we still expect the …
16th April 2015
The apparent acceleration in consumption growth in the first quarter will boost hopes that, despite the end of the mining boom, the Australian economy will avoid a sharp slowdown. Unfortunately, the recent improvement in consumption growth probably has …
10th April 2015
While a strengthening of the New Zealand dollar to parity against its Australian counterpart would be an important milestone, it would have little adverse economic impact. Indeed, the recent weakening in the trade-weighted index will provide a welcome …
9th April 2015
By deciding not to cut interest rates today from the current level of 2.25%, the Reserve Bank of Australia missed an opportunity to achieve the further weakening in the Australian dollar that it so badly craves. That said, if we are right in thinking that …
8th April 2015
While it is certainly not good news, a fall in the iron ore price to US$50 a tonne or below is neither here nor there when compared with the drop from $US130 to $US70 last year. What’s more, the full effect on the revenues of Australia’s iron ore …
3rd April 2015
Although China’s PMI is a relatively poor indicator of the near-term outlook for Australia’s exports, it does tell us how demand in China is influencing the prices of Australia’s key commodity exports. At current levels, the PMI supports our view that the …
1st April 2015
Regardless of whether the Reserve Bank of Australia (RBA) cuts interest rates from the current rate of 2.25% to 2.00% at the April or May policy meeting (we slightly favour a move at the meeting on Tuesday 7 th April), the main point is that this is …
While some of the latest data have suggested that economic activity in Australia has accelerated since the turn of the year, the bigger picture is that the economy is still struggling to cope with the end of the mining boom. Weaker than expected capital …
25th March 2015
The outlook for New Zealand remains stronger than the prognosis for Australia. Nonetheless, the 3.0% rise in GDP in New Zealand last year will mark the peak of the current cycle. We expect that the delayed hit from the fall in dairy prices and the …
23rd March 2015
New Zealand ended last year on a strong note, but the details of the GDP release for the fourth quarter support our view that this year will be a very different story. We expect growth to slow from 3.0% last year to around 2.3% in 2015. … New Zealand …
19th March 2015
Any rise in government bond yields in Australia and New Zealand triggered by the US Fed taking a step closer to raising rates is likely to be temporary, while any weakening in the exchange rates of both economies will probably be sustained. As such, the …
17th March 2015
The hit to New Zealand’s exports from the economic slowdown in Australia is going to be felt at almost the exact same time as the boost to activity from the domestic construction boom starts to fade. These two factors will contribute to an easing in GDP …
13th March 2015
12th March 2015
The 15,600 increase in Australian employment and slight fall in the unemployment rate last month may be seen by some commentators as a cause for relief. But the bigger picture is that Australia’s economy is struggling to create jobs, and we still expect …
The Reserve Bank of New Zealand (RBNZ) is odds on to buck the recent global trend by leaving its cash rate on hold at 3.5% in the announcement scheduled for Thursday 12th March. But if we are right in expecting both GDP growth and inflation to fall short …
9th March 2015
The end of the so-called income recession late last year appears to suggest that the direct hit to the Australian economy from the fall in the prices of key commodity exports has already come and gone. But unfortunately, the indirect effect on business …
6th March 2015
Australia’s economy picked up by less than expected in the fourth quarter, and worse is likely to be ahead, given that the effects of a significant deterioration in the country’s terms of trade are only just beginning to be felt. … Australia GDP …
4th March 2015
We believe that the Reserve Bank of Australia’s decision not to follow last month’s rate cut to 2.25% with another reduction today is just a pause in a loosening cycle that will take rates down to 1.5% by the end of this year. Such a fall below the …
3rd March 2015
The plunge in the prices of the key commodity exports of both Australia and New Zealand late last year will soon filter through into weaker domestic activity, resulting in GDP growth this year slowing to just 1.8% in Australia and to 2.3% in New Zealand. …
2nd March 2015
Our full analysis of the prospects for the Australian and New Zealand economies is contained in ourAustralia & New Zealand Economic Outlook (sent to clients today), but in this note we highlight ten ofour most important, non-consensus forecasts. … 10 key …
