Low inflation in antipodeans, exchange rate forecasts lowered - Rabobank

Analysts at Rabobank explained that measured since the end of last year, both the AUD and the NZD have been trending higher vs the CNY.

Key Quotes:

"This trend is a contributing factor behind the low levels of inflation being experienced in both countries.

Last week the RBNZ cut interest rates by 25 bps and remarked that “the exchange rate remains higher than is sustainable for balanced economic growth and, together with low global inflation, continues to generate negative inflation in the tradables sector.

A decline in the exchange rate is needed.

Although RBA Governor Lowe has taken a more pragmatic approach to low inflation, the potential risks stemming from a Trump Presidency combined with the drop in Australian wage growth to an all time of 1.9% y/y in Q3 suggest that the RBA could still ease again.

Although we see some potential for the recent broad-based rise in the USD to correct, we have lowered our 12 mth forecasts for AUD/USD and NZD/USD to 0.72 and 0.69 respectively."