Weaker dollars are a welcome windfall

The latest weakening of the Australian and New Zealand dollars to new six-year lows of US$0.73 and US$0.65 respectively are a windfall for the Reserve Banks of Australia and New Zealand who want to boost activity and inflation without throwing more fuel on the housing markets in Sydney and Auckland. What’s more, we expect that the Aussie and kiwi will yet weaken to US$0.65 and US$0.55 respectively. (See Chart below.) That said, set against a background of softening demand both at home and overseas, we doubt that the weaker currencies will prevent interest rates in Australia from eventually being reduced from 2.0% now to 1.5% and in New Zealand from 3.0% to 2.0%.