The Official Cash Rate (OCR) is the interest rate at which banks lend balances held at the Reserve Bank of New Zealand (RBNZ) to other banks overnight.
Short-term interest rates are paramount factor in currency valuation. This is highly correlated with the economic outlook because its changes can affect both inflation and recession.
In the second quarter, the New Zealand economy maintained a steady accelerating growth pattern. In its growth trajectory, external demand experienced a surging increase, and its stocks and equities edged higher with New Zealand Dollar (NZD) staying resilient in gains smashing multi-points resistance levels. Currently maintaining gains above 0.69560 price point.
Unfortunately, the recovery curve was flattened in the third quarter following the recent lockdown in mid-August that bridged the flow. Household spending declined due to falling consumer confidence from June’s high of 114.0 index to 104.5-point low in September. likewise, business sentiment is at its lows pointing to unfavorable private sector activities.
From the labor market perspective, 67.5 percent of the working-age population were employed in the second quarter of 2021, but the figure was seen dropping lower in the third quarter. According to Statistics New Zealand back in August, “the jobless rate fell 4% from a revised 4.6% in the first quarter”, sending a signal for interest rate hike speculation. The recovery outlook was sustained through the second quarter. However, the growth trajectory was short-lived in the third quarter due to covid-19 lockdown restriction, though the economy is currently tracking back pretty well as people develop tolerance on virtual work.
Consequently, the big question is, will the economy continue to flourish this year? Certainly, it seems possible reflecting way back on how 2020 ended on a good note. Despite the economic contraction in the mid-year of 2020, the shrank in GDP by 2.9% in 2020, and the unemployment rate at 5.3% towards the 2020 year close, the recovery is strongand it is expected to keep stronger till 2021 end. Comparatively, New Zealand’s economy is outperforming the developed countries such as Australia, United States, United Kingdom, and Japan relative to their starting points in 2019.
In broad-base, the economy seems fragile for a rate increase, considering the core monetary policy goals of the Reserve Bank of New Zealand in ensuring maximum employment and price stability.
Across-board, Lower Interest Rate will provide a boost to the broader economy by improving cash flow, encouraging spending and investment, which will increase economic activity and boost employment.
Regardless, traders should brace themselves up for a period of high volatility as Official Cash Rate (OCR) reports often have a great impact on the FOREX market. An increase in Cash Rate will usually strengthen the NZD (New Zealand Dollar), while a decrease in Cash Rate will usually weaken the NZD (New Zealand Dollar).
Traders should always be aware that volatile markets provide great opportunities for making profits, as the increase in volatility can cause market swings for traders to capitalize on.
The currency pairs that include the NZD (New Zealand Dollar) are mostly affected by the data release. The pairs include: NZDUSD, AUDNZD, EURNZD, GBPNZD, NZDCAD, NZDJPY etc.
Time Schedule for the next Official Cash Rate Report:
Date: Wednesday. 6th October, 2021.
Time: 2:00am (GMT + 1).
Author: Solomon Amogo
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