RBNZ Cut OCR by 50bps

According to the chief economist of Westpac, Dominick Stephens, everyone has been surprised by the Reserve Bank of New Zealand (RBNZ)’s decision to cut the official cash rate (OCR) today by 50 basis points.

The last times the central bank of New Zealand cut the OCR by 50 basis points was after the 9/11 terrorist attack and Christchurch earthquake.

That decision was unexpected.

However, the monetary policy statement does not indicate whether there will be other cuts in the near future.

That decision also shocked the markets.

Consequently, the NZD/USD pair dropped by 1.9% to 0.6400 while the AUD/USD pair also went down by 0.9% to 0.6698 because several analysts are now assuming that the Reserve Bank of Australia will initiate similar actions.

Gold Prices Rise on Wednesday

In the background of the trade tension between the US and China, gold prices rose by 1% on Wednesday.

Thus, gold futures for December delivery went up by 0.9% to $1,496.65 on the Comex division of the New York Mercantile Exchange.

This morning, the central bank of China set the midpoint reference for the Chinese yuan at 6.9996.

The tensions resumed last week after the US President, Donald Trump decided to impose a tariff of 10% on $300 billion worth of Chinese imports from Sept 1.

Several analysts are forecasting that this cold war will push the US Federal Reserve to cut interest rates.

Bitcoin & Gold Move Together Once More

Similar to gold which is heading toward the $1,500 level, bitcoin also started heading forward despite being still far away from its historical peak.

The same trend was seen three years ago when the UK decided to exit from the European Union (EU). As the pound dropped, both gold and bitcoin gained.

This time, the market is experiencing a similar situation with the trade war between the US and China.

According to some research and analysis, over the past year, the correlation between gold and bitcoin was 0.496. However, it shot up to 0.827 in the past few months.

When the correlation coefficient is 1, it reveals that the assets are moving in the same direction and vice versa if the coefficient is -1.

Over the past year that’s what we saw. Opposite 49% of the time, both down on 22% and both up on 29% of trading days. But over the past three months, since May 8, they’ve moved together 58% of the time.

Over the past year, gold and bitcoin moved up together 29% of the time while since May 8, both moved together forward 58% of the time.

Though the data might not be enough to be considered significant, it still shows that there might be a positive correlation between gold and bitcoin in times of market turbulence.

Financial Events to watch for today

02:00 GMT
RBNZ Interest Rate Decision [NZ]
14:30 GMT
Crude Oil Inventories [US]