If you want to trade based on fundamental analytics, you definitely cannot do without a specialist. Below we will not make attempts to determine the right direction of trade, but rather focus on the ability to correct it – you will learn how to react correctly to a particular economic news.
Any financial news can lead to three consequences: to lower the exchange rate, increase it or leave it unchanged. Determining the consequences is not so difficult. Let’s list several types of news that have the maximum impact on the market, and comment on them.
The first one. Trade (payment) balance is the ratio between import and export of products in the state. Export – the export of goods from a country abroad in order to carry it out, foreign companies are forced to buy the producer’s currency, therefore, export will strengthen the exchange rate. When importing, on the contrary, the state buys foreign currency, thereby weakening its own exchange rate.
If exports exceed imports, economists say “There is a positive trade balance” – this news will definitely lead to the strengthening of the country’s economy. A negative balance indicates the excess of imports over exports – the economy is weakening.
The second one. Interest rate of the Central Bank. To deal with this indicator, you need to clearly understand the following scheme. When you come to a commercial bank to get a loan, this bank goes to the Central Bank, because the money is there. The Central Bank gives a commercial bank a loan at a percentage equal to the interest rate (suppose that it is 10 percent). A commercial bank transfers the money received to you, increasing the interest rate two times as a minimum. As a result, you pay the bank twenty percent on the loan, it transfers half of your money to the Central Bank, and half it leaves to itself.
An increase in the interest rate, on the one hand, is unprofitable for borrowers, on the other hand, is beneficial for investors, therefore this point can be considered contradictory. Most economists believe that rate hikes strengthen the currency.
The third. Producer price index. For the production of any product, source material is required. If the cost of the material grows, the value of the product that is created from it will grow, because the manufacturer spends more money on the production of the product. The producer price index shows whether the average cost of raw materials increases or decreases.
The derivative of a given economic quantity is the consumer price index. It shows how much more or less the price of goods has become relative to the initial level. Simply put, the consumer index is the same as the inflation indicator: If we began to spend more money on the same product than before, the money depreciated, the inflation rate increased.
In case of growth, both of these indices weaken the economy, and in the event of a decline, they strengthen.
Want to know more? Check out other factors influencing global events on the value of the currency in the auction: