In Q&A sessions this week, RBA Governor Lowe and RBNZ Governor Wheeler, one just beginning his tenor, the other coming to the end of his, provided some insights into how they view their economies, rates and exchange rate policies, and the isolationist rhetoric in the USA with Trump in the White House. 

Faced with similar conditions, the RBNZ sounded cautious, while the RBA sounded cautiously optimistic. The RBNZ was more dovish seeing rates on hold for over 2-years and continues to talk down the NZD exchange rate.  RBA’s Lowe was, perhaps to many, surprisingly sanguine about the AUD exchange rate. 

RBNZ’s Wheeler considered protectionist trade policies in the USA as the biggest threat to global growth, citing research from the OECD.  RBA’s Lowe noted that barriers were surely not the road to prosperity. 

Lowe was also worried about signs that the US was withdrawing from global forums on financial stability, and criticized US administration officials for their comments on the yen, the yuan, and euro. 

Lowe is a supporter of the G20 gatherings, noting on several occasions since becoming Governor that it has supported growth orientated policies, including infrastructure spending, reduced regulation, and tax reform. Lowe pointed out that, to some degree, these were Trump’s core domestic political message. If this were to serve as an example to others, like the Australian government, Lowe said this could be very good for global growth.

Seeing either a very good or a very bad outcome from the Trump administration, Lowe said he is in watch and wait mode.  Trump has some good domestic economic policy, but destructive isolationist tendencies.

RBNZ Wheeler discussed how higher global interest rates would tighten financial conditions in New Zealand. Lowe outlined his concern over excessive household debt in Australia, stating why it would not be a good idea to cut rates further despite still low inflation.  It is evident that both the Australian and New Zealand economies and currencies would be dampened in a rising global yield environment more so than most countries due to high household debt and regulatory changes that require banks to seek more long-term funding; a lot of it still coming from foreign sources.

This insight is part of Smartkarma. For more follow this link.