Relevant agencies or authorities publish important fundamental data regularly. These statistics are eagerly awaited and coveted by traders and the stock market.
Different evaluations are made of the published figures. For example, the US labor market figures have a greater weighting on global stock and foreign currency markets, notably the exchange rate EURO/USD. This is in contrast to figures from other countries, like Brazil for instance.
Below are the basic data elements that have the greatest impact on currency rates and their relationship to other currencies.
Important economic factors
Daily economic calendar review is a common practice among traders for currency pairs they trade. Because of the potential for volatility in the forex market, and sentiment swings, the timely release of key information and fundamental metrics can have a significant impact on the currency pairs in which they hold positions.
Here's a list of top economic factors that are frequently covered in the news and which can help move the market when they are released. Every investor should be able to analyze these movements.
Rates of interest
These are key factors when comparing two currencies. For example, if interest rates in a country rise, the currency of that country becomes more attractive than currencies with lower rates.
Gross domestic product (GDP)
What is GDP? It is the sum of all services and goods produced in a nation. It also reflects economic growth. Fact: when it comes to using GDP as an Indicator of Welfare, it has many Limitations.
Employment data
A country that employs a greater percentage of its citizens will see its currency strengthen. These metrics are typically in the form of unemployment claims, payroll, or the unemployment rate.
Inflation
Inflationary business cycles are indicated by consumer and producer price indexes, the CPI and the PPI. This would increase the chances that the central bank would raise interest rates in order to reduce inflation. A rise in interest rates will tend to increase the currency's value.
Consumer Price Index (CPI)
Inflation is measured by the CPI. Inflation rising in a country could indicate that national central banks will soon tighten interest rates. As a result, they will allow their currency to appreciate.
Industrial production
A strong industrial base and large corporations will help strengthen a country's currency.
Retail Sales
Strong retail sales are usually good for a country's currency and the overall economy.
Credit
Another economic factor that can directly impact prices is the availability of money. The currency of a country that has borrowed large amounts of money from other countries or the IMF will reflect this high level of debt.
Other fundamental
Growth Factors
Growth is measured by changes in gross domestic product. Therefore, a currency that is stronger when it has a strong economy tends to grow.
Prices
Exchange rates are affected by the level of short-term interest rates, such as the fed funds rates in the currency's origin country. Higher interest rates can provide an investment stimulus that should help strengthen the currency.
Trade
A nation's current account balance and trade balance can affect foreign exchange rates. For example, a country's currency will be devalued if it has persistent trade deficits or current account surpluses.
Supply and demand impact
Large capital flows into or out of one currency can cause a shift in the exchange rate of the currency pair to favor the higher-demand currency. This could be due to large deals made by powerful companies or managed portfolio changes.
Monetary policy
Due to the influence of monetary policy on interest rates, this is an important aspect in evaluating a currency. Higher interest rates are likely to be attributed to tighter monetary policies, while lower interest rates will be attributed to looser monetary policies.
Political influences
Investors prefer currencies from stable countries to currencies from less-friendly countries. A greater fiscal responsibility tends to support the currency. The currency is also affected by excessive government spending.
Price of raw material
The value of currencies in countries that import and export these commodities in large amounts is affected by the price of commodities like oil and gold. Higher oil prices, for example, are good news for the British Pound and Canadian Dollar (CAD), but they hurt the US Dollar and Japanese Yen. On the other hand, higher gold prices are good for the Australian Dollar (AUD) and, through close ties, the New Zealand Dollar (NZD). This is because Australia exports the precious metal, so its currency will benefit from a rise in gold's value.
