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3 Central banks cut rates amid global economic downturn

Published August 8, 2019

Author: Dennis Li, Rhys Miles

The Reserve Bank of New Zealand shocked the markets yesterday by cutting its official cash rate more than expected to a record low of 1% and flagged the possibility of using negative rates to stimulate the economy. Expectations were for a 25 bps cut but the RBNZ was pushed to cut 50 bps citing weakening global activity as the US-China trade war continues to escalate. Whilst the RBA kept its cash rate on hold at 1.00% on Tuesday the aggressive move from New Zealand increases the possibility of a cut in its meeting next month.

The US Fed will now be under extreme pressure to cut rates with the likelihood of a 50 point cut at their next meeting not being dismissed. In addition to the RBNZ, we also saw two Asian central banks – the Reserve Bank of India and the Bank of Thailand cut their cash rate yesterday amid the concerns of an intensifying global trade war and slowing global economy.

According to a former vice-minister of commerce in China, despite the significant escalation in tensions between China and the United States this week, negotiators are still expected to meet in Washington in September for another round of trade talks.

Yesterday the AUD plummeted to its lowest level since early 2009 against the USD after the RBNZ’s surprising move but recovered to its recent support at 0.6750 overnight on the back of the US rate cut speculation and a subsequent slightly weaker USD. Similarly, the AUDEUR also dropped to a new low since October 2009 before finding its recent support at 0.6030. In terms of economic data, US employment data tonight as well as Chinese trade balance today might bring fundamentals back to the fore.