AUD/USD and NZD/USD Fundamental Daily Forecast – Westpac Predicts Two RBA Rate Cuts, QE in 2020

The Australian and New Zealand Dollars are inching lower on Wednesday on low volume. The tight trading range this week suggests many of the major players are on the sidelines ahead of the U.S. bank holiday on Thursday. Aussie and Kiwi investors have been showing little response to the optimistic news about U.S.-China trade relations. Instead, the focus has been on central bank expectations.

At 11:35 GMT, the AUD/USD is trading .6782, down 0.0005 or -0.08% and the NZD/USD is at .6424, down 0.0004 or -0.07%.

Australian Dollar

The big news on Wednesday is Westpac Bank’s prediction calling for Australia’s central bank to cut rates twice in 2020, while introducing Quantitative Easing.

The Reserve Bank of Australia (RBA) is likely to cut interest rates twice next year, taking the cash rate to 0.25% by June 2020, and then introduce quantitative easing (QE), Westpac Banking Corp said on Wednesday in a change to its house forecasts.

Westpac’s previous forecast was for the policy rate to fall to 0.5%. The cash rate is currently at a record low of 0.75% after three cuts of 25 basis points since June this year.

The revised outlook followed a speech by Reserve Bank of Australia (RBA) Governor Philip Lowe on Tuesday, in which he said he did not expect to have to use QE in Australia, but that it could happen if the cash rate was cut to 0.25%.

“The RBA has indicated it is prepared to push the cash rate to 0.25%,” Westpac chief economist Bill Evans said in a report.

“Westpac has always argued that monetary easing will be necessary in 2020 but assessed that the RBA would see 0.5% as the effective lower bound.”

New Zealand Dollar

On Wednesday, the Reserve Bank of New Zealand (RBNZ) released its financial stability report. In its latest report, it said options to address excessive daily debt are limited as farm sales are at historically low levels.

The dairy sector has limited options to address its “overhang” of debt despite the fact that the current low interest rates should help many farmers to pay down debt, according to the RBNZ.

In its latest Financial Stability Report (FSR) released on Wednesday the RBNZ said that a number of banks are seeking to increase their margins by imposing fees for the provision of various facilities to farmers and through repricing higher-risk borrowers.

“This means that the most financially vulnerable farms are likely to see significant relief in their financing costs.”

The RBNZ also said it was important that banks seek to manage their own exposures to the dairy sector from a systemic risk perspective, it is also important that they continue to work constructively with farmers wherever possible.

RBNZ Governor Adrian Orr Addresses Dairy Debt Situation

RBNZ Governor Adrian Orr told the media conference on Wednesday that in respect to the dairy debt situation what he would like to see is “more equity and lots of alternatives of long term capital provision whether it be debt or equity into some of these sectors, particularly the dairy sectors.”

“So that will no doubt be part of a transition – obviously our capital proposals are all about allowing, enabling banks to be friends in good times and bad as well over the longer term. So these are long term transition issues.”