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The Aussie and the Kiwi have been amongst the best performing G10 currencies against the US dollar so far this year but, while we expect both to remain resilient in 2022, we eventually expect them to weaken. Both the Aussie and the Kiwi have outperformed …
20th April 2022
The expansion of the government’s “Home Guarantee Scheme” will only result in a modest boost to housing demand. And with affordability set to worsen sharply as the RBA hikes interest rates, it won’t prevent house prices from falling next year. After …
The RBNZ’s decision to accelerate its hiking cycle shows it is willing to move decisively to get a hand on surging inflation. That’s in line with our forecast that it will hike the OCR to 3.0% by the end of this year. The Bank’s decision to hike rates by …
13th April 2022
While today’s policy statement wasn’t outright hawkish, the RBA’s dovishness is waning and we’re confident in our forecast that the Bank will start to lift interest rates in June . As widely anticipated, the Bank kept policy settings unchanged today, but …
5th April 2022
With the government facing defeat in May’s election, today’s Budget continued the course of loose fiscal policy that began at the start of the pandemic. As the unemployment rate is set to fall to a 50-year low, this only adds to the pressure on the RBA to …
29th March 2022
New Zealand’s high share of fixed mortgage rates won’t insulate the housing market from RBNZ rate hikes. Indeed, we’re sticking to our view that house prices will fall this year and cause the RBNZ to reverse course next year by cutting interest rates. The …
23rd March 2022
Migration is rebounding much faster after the border reopening than we had anticipated. While that will slow the decline in the unemployment rate, the labour market is already historically tight and inflation is set to surge. The upshot is that the RBA …
21st March 2022
We now expect inflation to reach a 21-year high of 5.2% in Q3 as fuel prices surge and firms pass on higher raw material costs to consumers. With the labour market nearing full employment and inflation expectations picking up, we reiterate our long-held …
16th March 2022
The RBA still sounded dovish when it kept interest rates unchanged today. However, we suspect that another upside surprise in Q1 inflation will convince the Bank that tighter policy is needed even if wage growth remains modest and have pencilled in the …
1st March 2022
The RBNZ sounded hawkish when it lifted rates today suggesting the OCR will rise further than we had previously anticipated. But a more aggressive hiking cycle will be an even bigger headwind to the economy next year, so we still think the RBNZ will …
23rd February 2022
The sharp drop in the fertility rate during the pandemic has already started to reverse. And even if it is sustained, the government will be able to offset a slower natural increase with higher net migration. The upshot is Australia will remain one of the …
14th February 2022
Continued strength in underlying inflation and activity will prompt the Reserve Bank of Australia to start hiking rates in June. And we now expect the Bank to lift the cash rate to 1.75% by August next year. Further evidence that the Australian economy is …
10th February 2022
The RBA today ended its bond purchases, revised up its inflation forecasts and no longer signalled that wage growth needs to be “materially higher” to meet its inflation target on a sustained basis. We expect the first rate hike in August . The Bank’s …
1st February 2022
Trimmed mean inflation will probably climb above the upper end of the RBA’s 2-3% target band in Q1, which would add to the case for the RBA to start hiking rates in May. However, the RBA hasn’t changed its policy rate in an election month since it started …
26th January 2022
We think that GDP growth in Australia will surprise to the upside. But with wage growth only approaching the 3% watermark the RBA would like to see by year-end, we expect the Bank to keep rates on hold. By contrast, we expect the RBNZ to hike interest …
11th January 2022
The Omicron variant will probably result in a stagnation in consumption this quarter. However, by worsening supply shortages it will only add to the upward pressure on inflation. The upshot is that it won’t necessarily prevent the RBA from ending QE in …
6th January 2022
The government unveiled only modest increases in spending in today’s fiscal update. And while the unemployment rate has now reached levels where the Treasurer has pledged to start repairing the public finances, the government’s priority remains to support …
16th December 2021
The Reserve Bank of Australia and the Australian government are keen to explore the benefits of a retail central bank digital currency. But with pilot projects yet to start, we doubt that an eAud will be launched before the middle of this decade. The …
9th December 2021
The RBA still sounded dovish when it kept policy unchanged policy. We think that rates will rise earlier than the Bank anticipates but later and by less than what the financial markets price in. As widely anticipated, the Bank kept its policy rate …
7th December 2021
While the RBNZ only hiked rates by 25bps at today’s meeting, it is set to continue lifting rates next year. However, we think a slowdown in the economy will end the Bank’s hiking cycle with the OCR at 2.0%. Today’s 25bp hike in the OCR was correctly …
24th November 2021
High household debt will magnify the impact of interest rate hikes on the housing market and we now expect prices across the eight capital cities to fall by 5% from H2 2023. The upshot is that the RBA is unlikely to hike rates as sharply as the financial …
Rising interest rates will result in the RBA making further losses in the years ahead. The Bank’s existing reserves should be enough to absorb those losses in a benign scenario, but the Bank will stop paying a dividend. And in a worst-case scenario, the …
9th November 2021
If the RBA hiked rates by nearly 200bp as the financial markets were anticipating until recently, households’ debt servicing burden would hit an all-time high and housing would become the least affordable since the global financial crisis. That would slow …
3rd November 2021
The RBA abandoned its yield target and its pledge that rates will remain low until 2024 today, but still sounded dovish. While the financial markets expect the first rate hike in May next year, we expect the Bank to wait until early-2023. The Bank pinned …
2nd November 2021
Australia’s exports to China are even more vulnerable to a slowdown in the property sector than they were before the trade spat as iron ore has gained in importance. We think that China’s steel demand will fall before long and even if it doesn’t, a shift …
13th October 2021
The RBNZ’s decision to begin its hiking cycle while Auckland is still in lockdown highlights that the New Zealand economy is on the brink of overheating. And as restrictions ease, we think the Bank will continue hiking rates in the months ahead. Today’s …
6th October 2021
The RBA today stuck to its guns by predicting that rates won't rise until 2024, but our view that inflation will remain higher for longer means it will happen in early-2023 already . As universally anticipated, the Bank kept its interest rate and asset …
5th October 2021
High and rising household debt in Australia and New Zealand will limit central banks’ scope to hike interest rates. The upshot is that we expect the RBNZ to hike rates by a modest 125bp in the tightening cycle set to start next month, while the RBA’s …
23rd September 2021
Soaring shipping costs will exacerbate the impact of the weaker exchange rate on import price inflation. Indeed, we expect underlying inflation to return into the RBA’s 2-3% target next year. “Core” consumer goods prices rose by a subdued 0.3% q/q in Q2, …
20th September 2021
We doubt that any independent review of Australia’s monetary policy framework would result in a change to the RBA’s 2-3% inflation target. But the Bank could be forced to put more emphasis on house prices, reduce the frequency of Board meetings, and …
15th September 2021
Economic activity in New Zealand took a significant hit as the country was plunged into its strictest level of lockdown in August. But New Zealand’s success at taming the virus means output should return to its pre-Delta path by Q1 and the RBNZ will begin …
9th September 2021
While the RBA pressed ahead with tapering its asset purchases today, the financial markets are too optimistic in pricing in rate hikes as soon as next year . The RBA kept its interest rate targets unchanged at 0.10% as widely anticipated, but the more …
7th September 2021
The recent reimposition of the strictest level of lockdown in New Zealand was enough to prevent the RBNZ from hiking rates in August. And our assumption that restrictions will now remain in place until near the end of this year means we now expect the …
20th August 2021
The RBNZ sounded hawkish when it left rates on hold today, but the decision demonstrates that the Bank is taking a cautious approach in light of the current lockdown. Assuming restrictions can be eased before long we still expect the Bank to hike rates to …
18th August 2021
The Reserve Bank of Australia signalled today that it’s unlikely to reverse the tapering of its bond purchases even as Sydney’s virus outbreak is getting worse. We still expect the tight labour market to deliver stronger wage growth and inflation than the …
6th August 2021
While the unemployment rate is now back at its pre-virus low, a range of indicators suggest that there is still some slack in the labour market. We think the unemployment rate may eventually fall to 3.5%. However, mounting staff shortages will act as a …
5th August 2021
The Reserve Bank of Australia delivered a hawkish surprise by not delaying the tapering of its bond purchases. And by predicting that it will hit its full employment mandate and make further progress towards its inflation target, it has opened the door …
3rd August 2021
We believe that the slump in net migration is holding back supply more than demand. Unless the government allows net migration to overshoot its pre-virus level for a prolonged period once the border reopens next year, we think that staff shortages will …
27th July 2021
With Sydney tightening its lockdown and the one in Victoria set to be extended, we now expect GDP to shrink by 0.5% q/q in Q3. The vaccine rollout isn’t advanced enough yet to ease the medical situation meaningfully, but it is set to keep accelerating and …
19th July 2021
The RBNZ today sent a hawkish signal by announcing the end of its bond purchases. While we currently expect the Bank to start hiking rates in May next year, the risk is that it will happen earlier . The Bank’s asset purchases have fallen very sharply in …
14th July 2021
With the virus outbreak in New South Wales going from bad to worse we’re pencilling in a marked slowdown in Q3 GDP growth. However, given that deliveries of the Pfizer vaccine have been brought forward and more people are now encouraged to take the …
12th July 2021
By tapering its bond purchases and watering down its commitment to keep its policy rate unchanged until 2024, the RBA is paving the way for interest rate hikes in 2023 . The Bank's decision to shift to a flexible form of quantitative easing that doesn't …
6th July 2021
The labour force survey overstates the strength of the recovery in employment because it doesn’t capture the plunge in the number of non-resident workers. However, their impact on the labour market isn’t as large as the headline figures suggest as they …
27th June 2021
The surge in consumption in Q1 resulted in the savings rate falling to a 15-year low. While we expect households to respond to falling house prices with higher savings, the rebound in GDP could be even stronger than we currently assume if households keep …
24th June 2021
We now expect the unemployment rate to approach 4% by late-2022. Even though the reopening of the border should ameliorate staff shortages a bit next year, we expect wage growth to accelerate markedly. As such, we’re bringing forward our forecast for the …
23rd June 2021
We expect the RBNZ to impose new lending restrictions in the months ahead which, in addition to rising interest rates, should result in house prices declining next year. The median house price in New Zealand was up 32.3% y/y in May. Part of that was due …
17th June 2021
The RBNZ’s hawkish rate outlook has prompted us to bring forward our forecast for the first RBNZ rate hike from November to May next year. But in contrast to the RBNZ, we don’t think the pandemic will cause lasting damage to the labour market so we’ve …
14th June 2021
We now expect the RBA to refrain from announcing a target for the overall amount of bond purchases at the July meeting while keeping the weekly pace of purchases unchanged at $5bn . A more flexible approach to bond-buying would make it easier for the Bank …
8th June 2021
The Reserve Bank of Australia still sounded dovish when it kept policy settings unchanged today. We think it will expand its bond purchase program by another $100bn next month. The RBA’s decision to keep interest rates and the parameters of its bond …
1st June 2021
In the short-run, China has no choice but to grit its teeth and keep buying Australian iron ore, even as bilateral ties continue to fray . But this dependence will diminish over time thanks to increased supply from other sources, greater use of recycled …
26th May 2021