We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bearish
Oil - US Crude
Bearish
Wall Street
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Mixed
USD/JPY
Bullish
More View more
Real Time News
  • 🇲🇽 GDP Growth Rate YoY Final Actual: -1.4% Previous: -0.5% https://www.dailyfx.com/economic-calendar#2020-05-26
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 96.64%, while traders in US 500 are at opposite extremes with 75.52%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/5aSCLBqXc1
  • Heads Up:🇲🇽 Economic Activity YoY due at 11:00 GMT (15min) Expected: -3.5% Previous: -0.6% https://www.dailyfx.com/economic-calendar#2020-05-26
  • Heads Up:🇲🇽 GDP Growth Rate YoY Final due at 11:00 GMT (15min) Previous: -0.5% https://www.dailyfx.com/economic-calendar#2020-05-26
  • Emerging market currencies haven’t been treated equally by the effects of global contagion, even if most have suffered to some degree. However withdrawal of investment flows could hit them all. Get your market update from @DavidCottleFX here:https://t.co/QzNoNYgMgP https://t.co/rIrzpGTgvn
  • Chinese President Xi says will step up preparedness for military combat
  • Commodities Update: As of 10:00, these are your best and worst performers based on the London trading schedule: Silver: 1.31% Oil - US Crude: 0.90% Gold: -0.22% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/LKcIsCQeTg
  • #DAX30, #dowjones : la reapertura económica lidera los avances #trading https://t.co/GoI9cOuD9A
  • Forex Update: As of 10:00, these are your best and worst performers based on the London trading schedule: 🇳🇿NZD: 1.28% 🇦🇺AUD: 1.17% 🇬🇧GBP: 1.01% 🇪🇺EUR: 0.57% 🇨🇭CHF: 0.35% 🇯🇵JPY: 0.04% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/eMQxa6E4eU
  • Coming up at half past the hour: my weekly webinar on market #sentiment. Do join me if you can. You can sign up here: https://www.dailyfx.com/webinars/181540619?ref-author=essex&CHID=9&QPID=917711
Forex Strategy - Rate Expectations Impacting FX Post Fed, RBNZ

Forex Strategy - Rate Expectations Impacting FX Post Fed, RBNZ

2012-10-24 23:35:00
John Kicklighter, Chief Strategist
Share:

The currency markets – like every other asset class – are guided by the balance of ‘risk’ and ‘reward’. The risk component is easy enough to measure through a general sense of fear or through the volatility indicators. Reward (or return) should be just as straightforward, but there are a few considerations that we must account for.

When we measure the benchmark for return in the FX market, we are referring to the yield that a currency or differential that a currency pair presents rather than a rise or fall in the exchange rate. Yields are known and changes to the exchange rate are fully speculation. But there are speculative aspects to the benchmark market rates as well. A market full of traders will work to price in expected changes to key rates. In fact, this is one of primary fundamental drivers of the currency market.

And yet, we find today that yields have been slashed to extremely low levels. Despite that fact, investors are still trying to chase the anemic levels of return. However, as the last of the investment currencies see their rates fluctuate, we find the yield outlook can take over the top spot for driving a currency.

Over the past month, we have seen a very different picture of the three most liquid ‘carry’ currencies. The Reserve bank of Australia (RBA) cut its benchmark rate for a fifth time in its current cycle and has threatened further rate cuts are possible moving forward. This morning the Reserve Bank of New Zealand (RBNZ) held its benchmark rate and surprisingly maintained an outlook for inflation to pick back up to target zone levels (2 percent) despite 3Q figures printing a 1999-low 0.8 percent figure. Ultimately, the New Zealand authority maintains a slightly hawkish bearing. And, at the upper end of the scale, we have the Bank of Canada (BoC). Despite a slowdown in inflation figures, concerns of domestic bubbles and a global economic slowdown; the central bank yesterday said a hike moving forward was more likely.

Below we look at how interest rate expectations expect key AUD and NZD pairs. We also show how pairs that combine investment currencies leverages the importance of interest rate expectations (and curbs the more traditional risk-reward concerns.

Australian Dollar Pairs

Forex_Strategy_Rate_Expectations_Impacting_FX_Post_Fed_RBNZ_body_Picture_5.png, Forex Strategy - Rate Expectations Impacting FX Post Fed, RBNZForex_Strategy_Rate_Expectations_Impacting_FX_Post_Fed_RBNZ_body_Picture_6.png, Forex Strategy - Rate Expectations Impacting FX Post Fed, RBNZForex_Strategy_Rate_Expectations_Impacting_FX_Post_Fed_RBNZ_body_Picture_7.png, Forex Strategy - Rate Expectations Impacting FX Post Fed, RBNZ

New Zealand Dollar Pairs

Forex_Strategy_Rate_Expectations_Impacting_FX_Post_Fed_RBNZ_body_Picture_8.png, Forex Strategy - Rate Expectations Impacting FX Post Fed, RBNZForex_Strategy_Rate_Expectations_Impacting_FX_Post_Fed_RBNZ_body_Picture_9.png, Forex Strategy - Rate Expectations Impacting FX Post Fed, RBNZForex_Strategy_Rate_Expectations_Impacting_FX_Post_Fed_RBNZ_body_Picture_10.png, Forex Strategy - Rate Expectations Impacting FX Post Fed, RBNZ

Paired Investment Currency Pairs

Forex_Strategy_Rate_Expectations_Impacting_FX_Post_Fed_RBNZ_body_Picture_11.png, Forex Strategy - Rate Expectations Impacting FX Post Fed, RBNZForex_Strategy_Rate_Expectations_Impacting_FX_Post_Fed_RBNZ_body_Picture_12.png, Forex Strategy - Rate Expectations Impacting FX Post Fed, RBNZForex_Strategy_Rate_Expectations_Impacting_FX_Post_Fed_RBNZ_body_Picture_13.png, Forex Strategy - Rate Expectations Impacting FX Post Fed, RBNZ

--- Written by: John Kicklighter, Chief Strategist for DailyFX.com

To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter

Sign up for John’s email distribution list, here.

Additional Content:Money Management Video

Trading the News Video

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.