Aussie dollar plummets to 10-year low

Jeannie Matthews
August 8, 2019

The bank is also under pressure to keep step with a global shift toward lower borrowing costs so that the New Zealand dollar doesn't strengthen, which could hurt exports and reduce imported inflation.

The "RBNZ's OCR forecast now has a low of 0.9 percent, still implying an easing bias". Governor Adrian Orr will hold a press conference an hour later.

Markets wagered even further cuts would be needed as central banks worldwide try desperately to head off a deeper slowdown.

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Expressing concerns over a sluggish GDP growth in New Zealand alongside a quickly evolving geo-political gearstick, Reserve Bank of New Zealand's monetary policy committee said in a statement on Tuesday (August 6th), "The Monetary Policy Committee agreed that a lower OCR is necessary to continue to meet its employment and inflation objectives".

The lower bound of the 1-standard deviation trading range rests beneath the year-to-date low for spot NZDUSD which could be tested if the RBNZ confirms the market's expected interest rate cut now priced in and provides dovish outlook.

Market sentiment has deteriorated rapidly as a result, which would support the safe-haven yen and hasten yuan declines as there appears to be no quick resolution to the U.S. -Sino conflict.

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Dovish RBNZ, coupled with escalating US-China trade tensions aggravated the bearish pressure.

All 36 economists surveyed by Bloomberg News had predicted that the RBI would cut rates by 25 basis points.

An RBNZ report today showed inflation expectations dropped to 1.86% - below the bank's 2% goal for the first time since early 2017. The jobless rate dropped to 3.9% in the second quarter, an 11-year low, and wages surged after the government increased minimum pay rates.

Still, markets may be getting ahead of themselves in expecting the RBNZ to influence the RBA's next move, according to macro hedge fund Ensemble Capital.

A fall in domestic demand last quarter lowered India's growth rate to 5.8 percent, with unemployment at its highest since the 1970s.

New Zealand and Australia, who came through the global financial crisis without having to resort to unconventional policy, now find themselves bracing for an economic slowdown with borrowing costs at record lows and little ammunition to deliver further stimulus. The bank said last month that it's taking another look at its unconventional policy strategy, though this was "at a very early stage".

The aforementioned actions from the RBNZ are the most drastic measures we've seen thus far from a major G10 central bank, nearly all of which have becoming increasingly dovish following the escalation of the US-China trade conflict.

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