Australia’s Omicron outbreak will hold back the recovery this quarter, but there are plenty of reasons why Australia will outperform New Zealand over the next couple of years. As the labour market has tightened more rapidly than we had anticipated, we’ve brought forward our forecast for the first RBA rate hike from February 2023 to November 2022. By contrast, we expect New Zealand’s housing market to come off the boil this year which should prompt the Reserve Bank of New Zealand to end its hiking cycle at 2.0% this year and start cutting interest rates in 2023. Our views on monetary policy are more dovish than what’s priced into financial markets so we expect 10-year government yields to be little changed. What’s more, we expect the New Zealand dollar to weaken against the Australian dollar.
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