Reading Between Currency Rate Headlines
Currency management can be confusing given the many countries and influencing factors involved,
- Interest rates
- Public debt
- Political stability
- Trade balance
- Current account
- Government intervention
If all these factors are in play at the same time, the dollar will be greatly impacted since the U.S. is the largest global trading partner. The U.S. dollar appreciated 15% since 2021 due to COVID-19 lockdowns ending, expanding public debt, and higher oil prices.
Some factors are highly correlated among certain commodities, currency pairs and countries. In our 24-hour news cycles, you’ll constantly hear about markets and currencies – especially in a volatile economy. Keep these associations in mind as you read or listen to current headlines.
- Oil Prices
Canada, Norway, and Russia’s currencies are highly correlated because oil is their main export. Their currencies appreciate when oil prices are high, since it’s good for their GDPs. Crude oil prices are always quoted in U.S. dollars. So, no matter where you are in the world, you’ll trade for oil in dollars.
- China’s Economy
The recent COVID lockdowns in China negatively impacted Australia. Because China is a major supplier to Australia, a slowdown in the Chinese economy also slows Australia’s growth and weakens the currency.
- U.S. Treasuries and Japan
The U.S. dollar and Japanese Yen (USD/JPY) are highly correlated to U.S. treasuries and can also be used to determine market risk. When interest rates rise, Treasury yields also increase. This lifts the dollar due to bond demand and strengthens USD/JPY prices since Japan’s economic policy is accommodating.
- Ukraine/Russian War
For the first time since the 1930s Russian troops invaded Eastern Europe, putting them on the doorstep of NATO member countries. EUR/USD traded to twenty year lows this month and could break parity later this year.
How should you respond to currency rate news?
- Carefully follow news in countries where your business operates.
- Determine whether to purchase currencies when you hear breaking news.
- Consider when its best to send foreign vs. U.S. currency.
For more information on currency management, contact Synovus Treasury and Payment Solutions, your Treasury Consultant, or Relationship Manager.
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