RBA rate cut: not if but when; 2016 year end AUD/USD forecast: 0.74
Our view that further monetary stimulus in Australia is needed has not changed. We see downside risk to our AUD/USD year end forecast of 0.74. This is based on our view that financial markets are underestimating the risk of a rate cut in Australia this year and that a 25bp rate hike in the US in December is not fully priced in. Hence we expect an unwinding of speculative long positions in the AUD to weigh on the AUD.
RBNZ likely to cut OCR by 25bp in November: NZD/USD forecast: 0.70
Earlier this morning, data from Statistics New Zealand showed that the New Zealand economy grew by 0.9% qoq in the second quarter, boosted by 5% growth in the construction sector. Economic growth in the first quarter was also revised higher from 0.7%qoq to 0.9%. Overall this is stronger than the Reserve Bank of New Zealand’s (RBNZ) forecast in the August monetary policy statement. We do not think that this is a game changer towards our call that the RBNZ is still likely to lower the Official Cash Rate (OCR) by 25bp to 1.75% later this year in November. A stronger than expected New Zealand dollar (NZD) is likely to complicate the inflation outlook going forward. As our view that the RBNZ is likely to lower the OCR by 25bp to 1.75% in November is less than 60% priced in by financial markets, the ear.
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