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NZ dollar rises against the Aussie after RBA indicates further rate cuts

Tuesday 18th June 2019

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The New Zealand dollar rose against the Australian dollar after the Reserve Bank of Australia said it is more likely than not to cut its cash rate further.

The kiwi was trading at 94.93 Australian cents at 5pm in Wellington from 94.75 at 7:45am. It was little changed at 64.93 US cents from 64.94 and the trade-weighted index was at 71.69 points from 71.68.

In minutes explaining its June 4 decision to cut the cash rate from 1.5 percent to 1.25 percent, the RBA said the move should reduce spare capacity in the labour market, creating more jobs.

“Given the amount of spare capacity in the labour market and the economy more broadly, (board) members agreed that it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead,” it said.

On the strength of that, Commonwealth Bank of Australia is now forecasting two further cuts in the cash rate this year, most likely in August and November.

Sheldon Slabbert, a dealer at CMC Markets NZ, says he agrees the RBA is likely to cut rates, but not because of what’s happening to employment.

If low rates boosted employment, the countries such as Spain and Italy, which have negative interest rates, should have booming labour markets and yet their youth unemployment rates are running above 30 percent, he says.

“The actual reason in my opinion is that there’s been a misallocation of debt to non-productive assets like property for two decades,” Slabbert says.

Australia’s once-booming housing market, particularly in Sydney and Melbourne, had been tanking, but the RBA’s rate cut and an easing in lending restrictions by the banking regulator, the Australian Prudential Regulation Authority, appear to have arrested that decline.

Markets are also expecting the Federal Reserve in the United States to take a dovish stance when it releases its latest monetary policy decision early Thursday, New Zealand time.

And New Zealand’s Reserve Bank is also expected to cut rates further after slashing its cash rate in May from 1.75 percent to 1.5 percent.

“Our growth has certainly topped out,” Slabbert says, citing last week’s PMI reading of manufacturing activity coming in at barely positive.

“Adrian Orr is a known dove and I think the data he’s looking at is softening and that’s certainly going to make him cut at least once and maybe twice” this year, he says, referring to the Reserve Bank governor.

The New Zealand dollar was trading at 51.81 British pence from 51.77, at 57.78 euro cents from 57.86, at 70.33 yen from 70.49, and at 4.4972 Chinese yuan from 4.4965. 

The New Zealand two-year swap rate edged down to 1.3667 percent from 1.3722 yesterday while the 10-year swap rate eased to 1.8150 percent from 1.8300.

(BusinessDesk)

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