The economies of Australia or New Zealand are slowly approaching restart and functioning with smaller restrictions than before. These messages seem to have a positive impact on the Australian dollar (AUD) or the New Zealand dollar (NZD) currencies, but there is also information that may upset this optimism.
Already tonight, the NZD/USD exchange rate dropped after the latest comment on the possible future levels of interest rates in New Zealand. Investors in the interest rate market have increased the chances and likelihood of further loosening of monetary policy when Westpac Banking Corp. presented the forecast that interest rates will fall to a negative level by November this year.
The money market estimates the cut of the main interest rate by 20 basis points in the first quarter of next year compared with 9 basis points previously. Westpac Chief Economist in New Zealand predicts that RBNZ will lower the main interest rate to minus 0.5 percent in November 2020.
Due to the weak economic outlook, more stimulus will be needed, and the New Zealand Reserve Bank is likely to double its quantitative easing program to NZD 60 billion at its May meeting, Westpac said. The market probability of the RBNZ rate cut to November increased to 87 percent.
As a result, if the above predictions came into force, it would have an unprecedented situation for the economy of New Zealand, but perhaps for the entire region. It is possible that the Australian economy could follow in the footsteps of New Zealand, also by cutting interest rates. For these two countries, a low exchange rate, which may be conducive to low interest rates, is necessary to revive exports. Perhaps after the stage of the fight against the coronavirus, we will face the stage of a currency war.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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