Sharechat Logo

NZ dollar falls with Aussie after Westpac's RBA rate cut call

Friday 24th May 2019

Text too small?

The New Zealand dollar fell in unison with its Australian counterpart against the greenback after Westpac forecast the Reserve Bank of Australia will cut interest rates three times this year.

The kiwi was trading at 65.16 US cents at 5pm in Wellington, after falling as low as 65.10 on the Westpac call, from 65.20 at 7:45am. The trade-weighted index eased to 71.96 points from 71.97.

“The June cut remains almost certain; a second in August is our expectation and the November cut should also proceed,” Westpac chief economist in Australia, Bill Evans says.

“Therefore, Westpac is now forecasting three cuts in 2019 in June, August and November to push the cash rate from 1.5 percent to 0.75 percent and to hold at that level through 2020,” Evans said in a note.

That means the Australian dollar should reach 66 US cents by the end of this year from 68.86 currently.

Evans is even talking about the RBA using “quantitative easing,” a form of money printing that involves the central bank buying bonds.

If the Australian cash rate goes as low as 0.75 percent, or possibly, 0.5 percent, the RBA may decide that QE would be more effective than cutting the cash rate further, he says.

Westpac market strategist Imre Speizer says the other thing weighing on the currency is the ongoing trade tensions between the US and China.

“An official in the US accused the Chinese of lying and the Chinese are saying, 'we’re not going anywhere unless you back off,'” Speizer says.

US Secretary of State Mike Pompeo accused Chinese telecommunications firm Huawei of lying about its ties with China’s government.

“For them to say that they don’t work with the Chinese Government is false,” Pompeo said in an interview with CNBC. “The Huawei CEO on that, at least, isn’t telling the American people the truth. The company is deeply tied, not only to China, but to the Chinese Communist Party,” Pompeo said.

News that the US purchasing managers index, a measure of manufacturing, fell to 50.6 points in May, its lowest level since September 2009, didn’t help market sentiment, Speizer says.

That fall was attributed to trade war worries and the resulting increased uncertainty for businesses. It has also revived talk of the Federal Reserve cutting interest rates later this year.

If the RBA and the Fed cut rates, that increases the likelihood New Zealand’s Reserve Bank will also cut rates further – it last cut the official cash rate to 1.5 percent, a record low, on May 8.

The New Zealand dollar was trading at 94.61 Australian cents from 94.55, at 51.46 British pence from 51.52, at 58.28 euro cents from 58.29, at 71.42 yen from 71.40 and at 4.5042 Chinese yuan from 4.5038.

The New Zealand two-year swap rate fell to 1.4769 percent from 1.5041 yesterday while the 10-year swap rate eased to 1.9625 percent from 1.9950.


  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

U.S. Added 4.8 Million Jobs in June as Reopened Businesses Rehired
Auditors have a duty to be alert to fraud
Strong sales recovery but uncertainty remains over economic outlook and potential second wave of COVID-19
Auditors keep falling into the same trap
The great interruption continues
Update on Clutha Upper Waitaki Lines Project
Napier Port Welcomes Inland Port Funding
Auckland Airport provides details of Other Significant Items expected to impact 2020 financial results and an update on further organisational change
Commercial Bay Tower fire
Industre Property Joint Venture Commences

IRG See IRG research reports