The Official Cash Rate Increase Could Trigger New Zealand Dollar Gains (NZD), Economy Flourishing
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 rate is a paramount factor in currency valuation. This is highly correlated with the economic outlook because its changes can affect both inflation and recession.
The New Zealand’s economy is booming and its housing market is flourishing. Overwhelmingly, the economy has thrived through the recovery phase and now steaming for a further upswing in growth.
Currently, inflation is red hot and rising at its fastest pace in its 10 years track record. Statistics revealed that the annual inflation rate is now up 4.9% from the previous 3.3% low, leading to overhitting of the economy and soaring prices.
These among other factors are strong drivers that could lead to tightening of monetary policy. From the “Reserve Bank of New Zealand shadow” Board meeting deliberation, there is an overwhelming call for monetary policy tightening basically through interest rates increase. Fundamentally, extreme asset price increase and housing were basically driven by intensely loose monetary policy.
As the expectation for monetary policy tightening heightens, New Zealand dollars will likely hold firm in gains in response to buyers’ strong move.
Positively, its job market sector is flourishing as its unemployment figure keeps declining near the record low at 3.4% and the labour participation rate keeps edging higher. The Purchasing Manager’s Index is up 54.3 from the recent release, indicating an industry expansion and its Gross Domestic Product (GDP) rose 2.8 percent in the last quarter.
In broad-base, the economy is mature to accommodate interest rate increase, considering the core monetary policy goals of the Reserve Bank of New Zealand in ensuring maximum employment and price stability.
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. 24th November, 2021.
Time: 2:00am (GMT + 1).
Author: Amogo Solomon
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