No rush to raise rates

2018 will be the first year this century that the Australian economy won’t benefit from either a mining or housing boom. In those circumstances, we doubt that GDP growth will rise above 2.5%. And despite a decent fiscal boost in New Zealand, a still-weak housing market and lower net migration will mean that GDP growth there may stay close to 3.0%. With inflation set to remain low in both economies, we suspect that both the RBA and RBNZ will surprise the financial markets by not raising interest rates at all this year. That could contribute to the Australian dollar weakening from US$0.81 now to about US$0.70 this year and the New Zealand dollar slipping back from US$0.74 to around US$0.68.