Missing the global tightening cycle

Our forecasts suggest that by the time the Reserve Banks of Australia and New Zealand get round to raising interest rates from record lows, the US Fed will already be cutting them. We think that a renewed easing in GDP growth in Australia, from 3.2% this year to 2.5% in 2020, will contribute to the RBA keeping rates at 1.50% until late in 2020 and that a further slowdown in growth in New Zealand, from 2.7% to 2.0%, will prevent the RBNZ from raising rates from 1.75% until late in 2021. Those forecasts are more dovish than those priced into the markets. They imply that the RBA and RBNZ will miss the global tightening cycle and that the Australian and New Zealand dollars will weaken further.