Currencies remain a concern

While the recent fall in the cash rate to record lows in Australia and New Zealand should help to support household spending, the effect on other areas of the economy may be more limited. For one, we doubt the interest rate cut will do much to boost the investment outlook in Australia. What’s more, both currencies remained at elevated levels despite the rate cuts, which is concerning given the negative effect of a sustained appreciation on the outlook for inflation and the external sector in both economies.