July 16, 2024

Business Bib

Business & Finance Blog

Macroeconomic Factors that Affect Forex

3 min read

The forex market is primarily controlled by the overreaching economic factors. These factors affect a trader’s decisions and ultimately determine the value of a currency at any given point in time.

The economic health of a country’s economy is an important factor in the value of its currency. Overall economic health, on the other hand, is shaped by numerous events and information that may change on a daily basis.This contributes to the 24/7 nature of the international foreign exchange market.

Capital Markets

The global capital markets are perhaps the most visible indicators of an economy’s health, while stock and bond markets are the most noticeable markets in the world.

It is difficult to miss the release of public information in capital markets due to  LBLV Broker Review, as there is a steady flow of media coverage and up-to-date information about the dealings of corporations, institutions, and government entities.

When there’s a wide rally or selloff of securities originating from one country or another should be a clear signals that for the investors’ eyes, the future outlook of the economy, whether short term or long term, has changed.

Sectors

Similarly, there are many economies that are driven by sectors, like Canada’s commodity-based market. in this case, the Canadian dollar is heavily correlated to the movements of commodities like crude oil and metals.

A rally in oil prices would likely lead to the appreciation of the Canadian dollar relative to other currencies.

Commodity traders, like Forex Broker List, depend heavily on economic data for their trades, so in most cases the same economic data will have a direct effect on both markets.

Bond Markets

In a similar manner, the bond markets are also critical to what takes place in the forex market, given that both fixed-income securities and currencies depend heavily on interest rates.

Treasury price fluctuation factor in to movements in currencies, meaning that a change in yields will directly affect currency values. Therefore, it is important to understand how bonds, specifically government bonds, are valued in order to excel as a forex trader.

International Trade

Also a key factor is the balance of trade levels and trends between nations. The trade levels between nations serve as a proxy for the relative demand of goods from a nation.

A nation with goods or series that garner high international demand will usually see an appreciation in its currency. For instance, in order to be able to buy goods from Australia, you as a buyer must first change your money into Australian dollars to make the purchase. The higher demand for the AUD will put upward pressure on its value.

Political Events

The political climate of a nation plays a huge role in the economic outlook for that country and, as a result, the perceived value of its currency. Forex traders are constantly monitoring political news and events to gauge what moves a country’s government may take within the economy.

These can come along with measures from increasing government spending to tightening restrictions on a particular sector or industry.