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90 seconds at 9am: RBA rate hike expected; Australian growth upgraded
November 3rd, 2009Bernard Hickey details the key news overnight in 90 seconds at 9am in association with ASB, including news the Reserve Bank of Australia is widely expected to hike its Official Cash Rate by 25 bps to 2.5% later today as the Australian economy recovers relatively strongly, businesspectator reported. That would put the Australian rate well above the 2.5% OCR in New Zealand.
The Australian Treasury upgraded its economic forecasts yesterday, FT.com reported. It now sees growth in the year to June 2010 of 1.5%, which is better than its previous forecast for a 0.5% fall. Australia’s unemployment rate is also now expected to peak at 6.75%, not 8.5%. This may trigger a resumption of the brain drain across the Tasman, given New Zealand’s unemployment rate is expected to peak at 7%.
Meanwhile Wall St wobbled overnight after a Fed official warned the US banking system was not robust and faced big commercial real estate losses, Bloomberg reported. But Ford’s profit rose and US factory output rose.
Tags: 90 at 9, Bernard Hickey, Reserve Bank of Australia
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November 3rd, 2009 at 10:14 am
So………..in the short term (6 months or so)
a) Aussie $ likely to strengthen against NZ$ based on i) growth expectation difference
ii) progressively higher IR in Aussie relative to NZ as Bollard insists on keeping our IR low till mid 2010
b) You will shortly be able to get better IR rates on Aussie deposit accounts (in the 6 month or so window)
Send your cash over to the Aussie banks and get a better IR and get a currency gain when you bring it back as well? Has to be worth a moment’s thought n’est pas?
November 3rd, 2009 at 10:22 am
AH – you’re on to something there! I’m heading across the ditch later next week, maybe I should take a rucksack of cash with me!!!
November 3rd, 2009 at 10:35 am
I look forward to seeing you on a future edition of “Border Patrol”, veedub.
November 3rd, 2009 at 10:41 am
Well you can get 5.2/5.25 already at 6 months (likely to immently move to 5.5%):
http://www.interestratenews.com.au/td_1yr.php
When sending cash best to use one of the non-bank Forex transfer platforms – they offer rates much closer to the interbank then any of the poxy big 4 will offer you here.
November 3rd, 2009 at 10:45 am
Andy do you have any thoughts on the long term x rate nzd/aud pair? Looks to me long term decline of the kiwi as the economic gap widens?
November 3rd, 2009 at 10:49 am
@ Harriet – I’m way too gutless to cart my life savings around in $100 notes! A simple electronic transfer would make more sense so in that respect it was a figure of speech.
The difference in OCRs between NZ & Aust (which will only widen in the short term) is a telling tale isn’t it? Brash’s vision of catching up with Australia is slipping further and further away.
November 3rd, 2009 at 11:01 am
I know, veedub! And I won’t try to disuade you from what you intend. But having been though this thought process ( I had a CFD through CMC Markets when the cross was at .90 about this time last year, and took my profit far to early), and still having in place a standing FEC at Westpac to transfer at .85, ( above the 10 year average of .83) I can’t bring myself to ’ship it off’ at below .80. At those levels the Aussies see our assets as ‘cheap’ and look to make a forex gain, going the other way!
November 3rd, 2009 at 11:05 am
Harriet, truth be told I probably won’t end up doing anything at all. No sooner do I decide to do something (in terms of my nest egg/future house deposit), I change my mind again! Paralysis by analysis I call it. So I leave most of it in the bank and dutifully add to it each week…….boring!!!
November 3rd, 2009 at 11:06 am
Matt – that would seem to be the logical outcome; but then Forex and logic are often strangers. The Kiwi tends to get swept along with the Aussie during commodity runs – I suspect many Forex traders in the overseas centres tend to lump them in together as 2 of the ‘goto’ currencies when the carry trade (of whateverstripe) or risk trade is flavour of the month. When this happens the gap between the pair doesnt see to widen as it might on fundamentals alone.
Having said that: given that Bollard and the Jonkey seem determined to re-inflate the housing bubble with cheap money for the next 7-8 months whereas the Aussies are much further along the curve – widening interest rate differentials alone in the near term make it look highly likely that the Aussie must strengthen vs Kiwi.
November 3rd, 2009 at 4:40 pm
RBA has raised its rates by 25 basis pts to 3.5%. The Aussie and Kiwi dollars did not move much. Where are the carry trade activities? Isn’t that strange?