Aussie dollar tumbles

THURSDAY, AUGUST 8, 2019 themercury.com.au SUBSCRIPTIONS 1300 696 397 THE Australian dollar has slumped to a decade low — falling below the “flash crash” nadir it hit earlier this year — after New Zealand’s central bank raised the spectre of negative rates.

Speaking after the Reserve Bank of New Zealand dramatically cut that nation’s cash rate yesterday, governor Adrian Orr said negative rates were “easily within the realms of possibility”.

The central bank had stunned economists, slashing its cash rate by 0.5 percentage points.

As the decision reverberated through markets, the Aussie dollar took another nosedive.

Amid increasing bets of further rate cuts in Australia, the Aussie tumbled through the US67.41c level it had touched in January.

It then spiralled below US67c for the first time since early 2009, when the global financial crisis upended currency markets.

Over 80 minutes from about noon yesterday, the Aussie fell 1.5 per cent against the greenback losing US1.05c.

It was buying US66.77c at its trough.

Australia faces similar challenges to New Zealand in terms of it striving to generate enough economic growth and employment to return inflation to the central bank’s target band. New Zealand’s cash rate is now at 1 per cent, which is on par with the cash rate here after Australia’s Reserve Bank cut that rate by 0.25 percentage points in June and July.

Mr Orr argued the move to cut New Zealand’s cash rate to 1 per cent actually reduced the likelihood it would ultimately have to resort to negative rates.

The Aussie dollar has fallen almost 5 per cent against the greenback since July 22.