A breathtaking 25-year record fall in Japanese industrial activity is likely to underpin a further 1% cut by the Reserve Bank of Australia to its interest rates today.
The Reserve Bank of New Zealand last week cut its interest-driving official cash rate by 1.5%, down to 3.5% - the lowest it has been in a decade since the OCR was introduced.
Market consensus is that Australia's 4.25% interest-driving "cash rate target" (CRT) will fall 100 basis points, or 1%, to 3.25%, the lowest since the mid-1960s.
The CRT fall will be a boon to homeowners where 80% of mortgage rates are on floating terms.
In New Zealand, about 80% are locked into some form of fixed rates.
ABN Amro Craigs broker Peter McIntyre said more bad news from Asia, Australia's main trading partner, was further compounded by the "stunning fall" in Japanese industrial activity during December, down from -5 to -20, its worst in 25 years.
He said in the past three months the index had "fallen off the edge of a cliff ".
The brokerage had raised its expectations from a 0.75% cut to the CRT in Australia today to a full 1% cut.
"We weren't able to stick to that forecast. The stunning fall in Japanese activity points to an even bigger contraction in Asian demand than we had anticipated, only last week." Mr McIntyre said.
"This alarming slide, and news of an outright contraction in private sector debt, prompted us to go for the bigger cut [1%], with the risk of a larger move."
ASB economist Chris Tennent-Brown forecast the Australian central bank would shave 0.75% off its CRT today.
He said the market had been pricing in a bottom New Zealand OCR rate of 2.5%, but that expectation had shifted down to 2.2% yesterday.
While "in theory" the New Zealand OCR could go to 0%, Mr Tennent-Brown believes it will be held at 2% and the Reserve Bank would look at other monetary policy options.
