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Australian dollar plunges to near 11-year low against Singdollar after New Zealand's rate cut

Australian dollar plunges to near 11-year low against Singdollar after New Zealand's rate cut

Australian dollars are seen in an illustration photo February 8, 2018. REUTERS/Daniel Munoz

SINGAPORE: The Australian dollar plunged to multi-year lows on Wednesday (Aug 7) as investors bet that the country's central bank would follow New Zealand’s move with massive interest rate cuts.  

The Australian dollar slumped to as low as 0.9246 against the Singapore dollar, a level not seen since Oct 24, 2008, when it touched 0.9158, according to global financial portal

Year-to-date, the Australian dollar has slipped more than 3 per cent against its Singapore counterpart, according to Bloomberg.

Wednesday’s tumble came after the Reserve Bank of New Zealand (RBNZ) cut its benchmark interest rate to an all-time low of 1 per cent as it forecast tougher economic conditions ahead.

The cut of half a percentage point was a surprise, with most economists forecasting a rate cut of 0.25 per cent.

Most indicators showed the economy remained relatively buoyant, but the bank said it had concerns about global trade.

"This was a stunning decision," said Westpac's New Zealand chief economist Dominick Stephens, noting rates had been cut by 50 basis points or more on only three other occasions.

"The RBNZ appears to be trying to get ahead of the curve," he added. "Given its clear willingness to reduce rates, and our view that there is some further economic softness to come in the near term, we now expect another 25 basis points cut in November."

UOB economist Lee Sue Ann said: “We had thought the RBNZ would prefer more time to evaluate the impact of the first rate cut in May, and wait out for further developments on the economic front.

“Overall, we see today’s bigger-than-expected move as pre-emptive in nature and the RBNZ is likely to wait for it out before considering further cuts in interest rates again."

The New Zealand dollar fell as much as 2 per cent to US$0.6378 on the news, a level not seen since early 2016 and the largest one-day percentage drop since late March.

The kiwi's walloping dragged its Australian cousin lower, as the large RBNZ rate cut puts pressure on the Reserve Bank of Australia (RBA) to move again after it reduced its benchmark rate to 1 per cent in July.

As a result, the Aussie dollar skidded 1.1 per cent to US$0.6677, a level not seen since early 2009.

The New Zealand move underscores how worried policymakers have become over the broadening impact of trade frictions.

New Zealand's economy relies on the country selling agricultural goods abroad, in particular milk powder to China, and on tourism.

"We were already on edge about all the US tariffs against China, but now people are starting to question whether we're headed toward some global recession," said Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Kokusai Asset Management.

Source: CNA/agencies/aj


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