Many factors affect the exchange rate between two currencies, the 3 most important ones are discussed here!!

With the rapid increase in globalization connecting different parts of the world the globe is getting smaller and smaller day by day. Gone are the times when the economy sustained itself by restricting trade within its boundaries. The picture of imports and exports is constantly jutting out. This makes the concept of “exchange rate” even more important.

Exchange rate between two currencies determines how much a country is required to pay for imported goods and also how much it is required to receive for the exports. Suppose you are a citizen of USA, and say the demand for US dollar due to an economic boom increases than its supply, the value of dollar rises and when the supply is more than the demand the value of dollar falls.

If the two countries heavily trade with each other, then the general notion of “exchange rate” plays a vital role.

The factor of demand and supply is really a crucial one because these economic parameters further depend on many factors like the interest rates, inflation etc.

If the interest rate in USA say is higher than in other countries people will prefer to invest more in the US owing to higher rate of return on their assets. This increases the demand for dollar. Similarly, if the interest rate is lower in USA as compared to other countries investment will be low, thereby decreasing the supply of dollars and thus, its value.

What if the high interest rate is accompanied by high inflation rate??

In this case the investors will not prefer investing in USA considering that the value of the dollar can be eroded any time due to higher inflation rates.

Thus, the above are the 3 most critical factors affecting the exchange rate between two currencies.

Related posts:

1. Exchange Rate Risk
2. Factors Affecting Foreign Currencies
3. Forex-Factors Influencing Currency Rates

Rupee has got further appreciation for 32 paise against dollar as it has settled at the final value as Rs. 49.50 to 49.51. Dollar has set up a strong selling rate by exporters and a sustain rise in the local ranges of equities. Nevertheless of the dollar selling rate their weakness overseas and their capital flaws and downs has boosted the rupee to be higher by the outlook.

Domestic unit rupee value closed at 49.82 previous day and on today the interbank forex market revealed that the close has been higher to about 49.67 however they were about to reach a low of 49.80 in the early morning trade and by some weakness in the stocks the rise in the interest rates was finally announced by the central bank.

Traders expected that they would occur to see the fall of dollar value overseas but the rupee bouncing back was able to keep to manageable and also able to recover the equities and they had obtained the sustainability in the dollar selling rate by exporters. Nevertheless on the Indian occasion of diwali the forex was said to be inactive for two upcoming days as said on 25 as that Oct 26 and Oct 27.

On Wednesday on a diwali occasion it obtained a gain for 37% or Rs. 19 paise. The main and primary support for rupee was widely provided by the Bombay Stock Exchange (BSE), which is the Sensex, has been boosted up for 18.6% or by 315.58 total points. The next support was extended for rupee when it was at the range of Rs. 49.25 against the dollar.

The CEO, Pramit Brahmbhatt said that the trading range between the Rs. 49.25 to 50.00 was terribly bought by the USD/INR value range. Since September dollar was little clumpsy against euro and it seems to be weak on New York market as marked up yesterday in trade.

Related posts:

1. Rupee ends up for 17 paise after its 8 day slip
2. India rupee gains 11 paise against the U.S dollar
3. Indian rupee ended 5 paise down

The banks continues to set position for long dollar after they have heard from central bank which said that it doesn’t want any of the weak local currencies. This declaration made the Kenya shilling to be firm up against dollar on the Friday trade. However, this state only prevailed before also. From Diamond Trust Bank, the head of trading, Mr. Sameer said that the banks are struggling to cut through the long dollar positions.

According to the situation prevailing in here, the expectation is that it must be lowered before the demand for the dollar is been increased. On Thursday’s close of trade, the Kenya shilling was at 86.20 was in the opening it was at 86.00 and finally reached 85.90 at the end of trading. For the first time the value of the Kenya shilling has been decreased in this five days.

The energy sectors and banks are eyed much on the dollar values but the traders reported that the range may vary from 85.50 to 86.30 against dollar in coming trading days. However, the forex market ranges will change through the decision of the central bank investors reported. The demand for dollar can be detected only from this ranges and positions.

The CBK (Central Bank of Kenya) has bought almost 28 million euro in trade. However, the purchases made by it on the Thursday were not to influence and change any kind of level ranges in the Kenya shilling but for the Kenyans official reserves. The daily updates of the bank are generally announced at 8.30 in Greenwich Mean Time.

Head of the Bank of Africa, Peter Mutuku said that the energy demands will be at 85.50 in next few upcoming days and thus this status will may also intend to stop the progress of the Kenya shilling. Government will be pushed in a situation to borrow funds when the short term interest rates increase.

Related posts:

1. Kenya shilling is barely steady against dollar
2. Selling pressure held firm on the pound yesterday, with the euro price falling below €1.08
3. Swiss franc came off rising the dollar value on laden’s death

Euro has been at greater heights for eleven months and now it has been slipped back from highs. On the Monday trade the euro value slipped from yen. It was high for five month against the value of dollar. According to the view of analysts, the euro zone higher rates are increasing in the trade market.

On Wednesday, Japan has been planned to publish the economic assets. Tightening the policy in the United States regarding the uncertainty and the view of the working officials on the Federal Reserve said about the downgrading of the economic assets by the bank of Japan.

The central bank of Europe is likely to increase the interest rate by 25 basis points and it marked the value to be low on the trade on Thursday. The euro seemed to be resistance at $1.4281 on the highs of November and however it was relaxed at $1.4230. In the recently marked highs it was raised to $1.4269 against the value of dollar.

Nevertheless of this rise and fall of the euro currency now a day, it’s reached its peak in July 2008, where it was regarded to be at $1.4300. Against the value of yen the euro is now at 0.1 percent low, which is 119.55. It reached 120 last since 2010 in the month of May.

The interest rates and gradual changes can be well noted for the changes at dollar/yen against the common euro rate differences. Dollar is strong enough at the value around 75.786. In the war of yen vs dollar, the dollar was at 84.735 values but on the opening trade it was at 84.04 yen.

Dollar was up for 11% where on the value of yen were 76.25 after the periods of world war.  Aussie had a shift from 87.69 to 87.25 against yen. Aussie against dollar was at $1.0420 to $1.0400.

Related posts:

1. Euro Versus Dollar
2. Euro claims higher against dollar
3. Drop against euro and dollar: Swiss franc

As per the prediction report, it seems that the growth of technology and industrial output is seems to be at the slight stage to be halted by 2 percent in December 2010. The last year bond auction is yet to be released in few days. However, the federal bond yield can reduce the trade and heading to look for the factory output data.

The key of the future economic growth is in the hands of the Index of Industrial Production (IIP). A senior citizen of a bank said that there is much change occurs in the industrial output every time and it is very hard to predict that eventually.

Hence it is important for the banks to look after the rate hikes and the bond prices. The central bank may be suppressed to these factors due to industrial output. Government has planned for selling bonds worth of rupees nearly 100 million rupees in few days.

Head for the fixed income in the L&T management said the result on the bond auction will be closely noted. If the trade market continues to face these sorts of weaker growth at industrial output then there will be many downs in the economic growth.

The central bank is now trying to maintain the growth at consistent by having avoiding the inflation shadow to affect the economic growth, said Duvvuri Subbarao, Indian governor for Reserve Bank. The benchmark for five year was now declined for 2 basis points and now at 8.07 percent rate.

One year swap interest rates are also lowered by 2 points and now at about 7.43 percent. About 15-20 billion rupees were traded just in the first hour of the trade whereas only four bonds were sold today for about 5.4 billion rupees.

Related posts:

1. Eurozone industrial production index rising fourth month in a row
2. Britain’s index of industrial production rose in September more than expected
3. Indicator “risk-yield” begins to decline

The Australian dollar managed to gain versus

lower-yielding currencies before a report to be released this week in the country is likely to show an advance in inflation in the last year’s last quarter, helping speculations that a series of interest rates in the country will restart.

The Aussie rebounded after losing versus most of lower-yielding currencies last week as risk aversion remained predominant in majority of trading hours. Investors in the South Pacific region are waiting an inflation report to be released on Jan 27th expecting positive numbers as forecasts suggest an advance for the country’s prices in the last quarter of 2009, which would provide grounds for a new series of interest rate hikes by Australian policy makers.

AUD/USD traded at 0.9053 as of 00:09 GMT from a previous rate 0.9034 when markets opened Sunday evening.

If you want to comment on the Australian dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

Related posts:

1. Australian Dollar Down on Chinese Risk Aversion
2. Australian Dollar Climbs on Unemployment Rate
3. Australian Dollar Rallies on Interest Rate Outlook

The Canadian dollar ranked among the worst performers in currency markets today as risk aversion influenced commodities and equities trading, which are strongly related to the loonie’s rates as weak economic data in the country also influenced the confidence towards Canada’s currency.

Speculations that interest rates hikes would happen anytime soon in Canada faded further away as consumer prices retreated according to a report published today, which forced the loonie down in a day were demand for raw materials declined, affecting the outlook for the Canadian economy as half of the country’s exports are commodities. The U.S. dollar advanced sharply versus its Canadian counterpart ask risk aversion brought traders to purchase safer assets in the world’s wealthiest nation, pushing the loonie away from parity with the greenback this Wednesday in foreign-exchange markets.

A considerable amount of strength in the loonie’s rally since the beginning of the year was based on the fact that a fast paced recovery would improve odds of interest rate hikes by the Bank of Canada, which has not been confirmed or signaled by the Canadian financial authorities so far, decreasing attractiveness for the loonie. Today, the commodities market was also bearish, affecting demand for Canadian raw materials and causing a double impact on the loonie rates.

USD/CAD traded at 1.0472 as of 19:23 GMT from a previous rate of 1.0314 yesterday. CAD/JPY traded at 87.06 from 88.39.

If you want to comment on the Canadian dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

Related posts:

1. Canadian Dollar Tumbles on Rates Outlook
2. Canadian Dollar Continues to Profit on Commodities
3. Canada’s Dollar Retreats on Oil, Risk Aversion

The Canadian dollar fell today after the nation’s central bank left interest rates unchanged at an all time record low, declining rate hikes speculations despite the favorable economic data published in Canada during the past few weeks.

The loonie dropped versus most of the 16 most traded currencies today after the central bank affirmed that interest rates will remain unchanged until June, decreasing sharply the attractiveness for the loonie as traders expected the good performance of the Canadian economy to produce more immediate results in terms of interest rate hikes. The Bank of Canada also made a statement against the loonie’s strength, which, according to its officials, is a threat to the economic growth in the North American nation, forcing the loonie down specially versus its a stronger greenback that advanced versus all of the 16 main traded currencies.

The lack of a hawkish tone in Canada’s central bank declarations affected the outlook for the loonie, which have been gaining on speculations that stronger economic conditions in the country would allow the BOC to raise interest rates sooner than expected, but its dovish position and against a strong loonie will certainly be an obstacle for loonie’s further advances.

USD/CAD traded at 1.0320 as of 15:28 GMT from a previous rate of 1.0255 in the intraday comparison. CAD/JPY traded at 88.24 from 88.45.

If you want to comment on the Canadian dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

Related posts:

1. Canadian Dollar Continues to Profit on Commodities
2. Canadian Dollar Remains Strong on Commodities
3. Canadian Dollar Falls on Trade Deficit Surprise

Once again interest rates are fueling a rally for the Aussie dollar as it happened in the second half of the last year, when the South Pacific currency ranked among the best performing options in

foreign-exchange markets.

Positive employment data published in Australia this Wednesday is helping the Aussie to rally to high levels versus most of the main traded currencies, as a declining unemployment rate, currently at 5.5 percent and much better than other key-economic regions in the world, is fueling speculations that interest rates will be once again hiked in the country next month.

AUD/USD traded at 0.9315 as of 00:11 GMT from a previous intraday rate of 0.9241.

If you want to comment on the Australian dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

Related posts:

1. Australian Dollar Climbs on Unemployment Rate
2. Yen Posts Weekly Drop on Poor Interest Rate Outlook
3. Yen Rallies on China’s Banking Policy

The dollar had a mediocre performance today losing versus a considerable number of currencies after the nation’s central bank was not so optimistic regarding the U.S. economy recovery, declining appeal for the greenback.

The dollar posted a disappointing performance in a day were equities and commodities markets increased appeal for higher-yielding currencies. The British pound posted another advance versus the greenback as Bank of England’s policy markers signaled that interest rates in the U.K. are due to be hiked at some point this year. The Federal Reserve stated that a modest economic recovery is taking place in the U.S., fact which traders interpret as a delay in forecasts of interest rate raises, which is certainly declining the attractiveness that fueled a dollar rally versus most of the main traded currencies in December.

As speculations of immediate rate hikes fade away in the U.S., the greenback rates will be more determined by the pace of recovery in the country compared to other economic regions throughout the world, specially in Europe and Asia, where the main U.S. trading partners are located.

EUR/USD traded at 1.4506 as of 20:57 GMT from a previous intraday rate of 1.4480 yesterday, in a session of high volatility for the currency pair. GBP/USD trded at 1.6286 from 1.6171.

If you want to comment on the U.S. dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

Related posts:

1. Payrolls Cause Dollar’s Weekly Decline
2. Dollar Drops on Fed Quantitative Easing Discussions
3. Chilean Peso Drops After Copper Rally

The Canadian dollar profited from a higher risk appetite session today and rebounded versus the yen and its U.S. counterpart as equities rose in North America, allowing the correlated loonie to profit from this trading scenario.

After two days losing in currency markets as concerns that the Canadian economic recovery is not as robust as analysts suggested, the loonie rebounded today, profiting from a positive performance of stocks and commodities, which have an extreme influence in the Canadian currency rates as raw materials exports are responsible for a big cut on the country’s international trade. The Canadian dollar also benefited from a less attractive U.S. dollar, which has been losing its appeal as the nation published several reports which featured data below forecasts, suggesting that interest rates will be not hiked so soon in the world’s wealthiest nation.

Demand for commodities is still playing a major role to back the loonie’s advance, as Canada’s economy, and consequently its currency, will rely on the global economic recovery in the first half of 2010 to determine whether demand for the nation’s raw materials will allow the country to recover steadily or not.

USD/CAD traded at 1.0304 as of 19:42 GMT from a previous rate of 1.0385 in the intraday. CAD/JPY rose to 88.60 from 87.52.

If you want to comment on the Canadian dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

Related posts:

1. Canadian Dollar Falls on Trade Deficit Surprise
2. Canadian Dollar Remains Strong on Commodities
3. Canadian Dollar Near 2-Month High on Oil

The Swiss currency had its previous week rally versus currencies like the pound and the euro halted today after the national central bank took a position against further advances of the franc, as the current appreciation was considered excessive by SNB officials.

After a rally that lasted during most of the past week trading session, the Swiss National Bank President Philipp Hildebrand stated today that the franc’s fluctuations will be monitored closely, also signaling that policy makers will attempt to prevent further gains for the its currency, as current levels, specially versus the euro, are considered too high. The Swiss franc also advanced considerably last week versus the greenback, as bets that interest rates will be raised in the U.S. declined after negative data was released.

Most of the franc’s advance during the past month were based on speculations that the SNB authorities would take a rather passive policy regarding the currency’s fluctuations, but after today’s affirmations, it’s likely that the Swiss currency will experience a considerable decline, or at least, a rather neutral trend as fears for interventions will certainly count on trader’s sentiment towards the Swiss franc.

EUR/CHF currently trades at 1.4752, 15:52 GMT, from as 1.4722 when markets opened yesterday. GBP/CHF also climbed to 1.6391 from 1.6310.

If you want to comment on the Swiss franc’s recent action or have any questions regarding this currency, please, feel free to reply below.

Related posts:

1. Morgan Stanley predicts the strengthening of the Swiss franc
2. Swiss Franc in Focus as SNB Announces Rates, Currency Policy (Euro Open)
3. Swiss National Bank Renews Threat of Intervention

The United Kingdom has been showing itself as one of the least resilient nations among the wealthiest countries in the world, and its weak economic data combined with a ineffective monetary policy is likely to set the sterling further down in the first semester of 2010, specially versus

higher-yielding options

Bank of England policy makers insisted to extend its so far frustrated bond purchase strategy, injecting its remaining 200 billion pounds on the program, as interest rates remain at an all-time record low of 0.50 percent, maintaining the pound’s outlook negative, specially as the traders started the year with high levels of risk appetite. Commodities linked currencies like the Australian and the Canadian dollar are likely to rally further versus the pound this year, and demand for energy is likely to favor these oil producer’s currencies, specially for Canada’s currency, as the winter in the Northern Hemisphere has been one of severest in the past year, increasing demand for energy in the United States.

This week will be marked by a monthly manufacturing production report in the U.K., which has provided mixed data in the past months, but nevertheless, as analysts aren’t very optimistic regarding British economic growth in the first quarter of 2010, the pound has considerable odds to lose further versus the currencies above mentioned.

GBP/CAD started this week trading at 1.6495 from as high as 1.6850 one week ago.

If you want to comment on the Great Britain pound’s recent action or have any questions regarding this currency, please, feel free to reply below.

Related posts:

1. Aussie hits new highs on sterling weakness and a rise in demand for higher-yielding currencies
2. Euro posts gains against the US dollar as risk appetite ushers investors into high-yielding currencies
3. USD Continues Decline; Slow Economic Recovery Expected

The kiwi dollar struggled on Friday enabling the pound to jump 1.4%, briefly nearing the 2.30 level, as risk appetite in the market waned.

• Higher-risk currencies struggled to make headway at the end of last week as the rally in global equities in the wake of the positive US GDP data came to an abrupt halt.
• As global stocks fell, investors sought shelter in the haven currencies fuelling a sell-off in the higher-yielding kiwi dollar, buoying the sterling price.
• In trading this morning, the New Zealand dollar has pulled back from six-week lows against the pound, with profit taking in high-yield currencies taking a pause.
• Support has also come from improved manufacturing data in China, a key importer of New Zealand goods, which has outweighed some of the negative sentiment toward the currency.
• Analysts have noted though that reduced support for a rise in interest rates and lower risk appetite may prevent the kiwi from regaining its strong valuation.

Related posts:

1. A rise in risk aversion weighed on the pound on Friday, supporting dollar gains
2. Demand for the kiwi remained strong yesterday, but it has lost ground in the wake of comments from Ben Bernanke
3. Sterling traded strongly at the end of last week against the kiwi but has slipped back sharply this morning

Better-than-expected GDP figures in the US caused risk appetite to surge across the board enabling the kiwi to post gains of over a cent against the pound.

• The solid GDP figure in the US renewed optimism about recovery in the global economy, prompting investors to buy higher-yielding currencies.
• The kiwi, which has suffered recently on a rise in risk aversion, was able to reverse losses as the positive data encouraged investors to buy up riskier assets.
• However, in trading this morning, the pound is recouping losses, pushing the price back near 2.27 as market participants return their thoughts to the RBNZ’s rate statement on Wednesday where they indicated that interest rates would not be raised for some time.

Related posts:

1. Sales data took the pound higher against the kiwi, continues to climb in trading this morning
2. Sterling fell just 0.03% against the kiwi yesterday, but has suffered in trading this morning
3. Demand for the kiwi remained strong yesterday, but it has lost ground in the wake of comments from Ben Bernanke

The kiwi dollar came under pressure yesterday following dovish comments from the PM, enabling the pound climb two and a half cents, closing at 2.1845.

• The kiwi dollar underperformed after the country’s Prime Minister John Key said New Zealand is concerned over the strength of its currency, but has few tools at its disposal to deal with it.
• The statement concerned investors as it lessened the chance of the RBNZ raising interest rates in the near future as some traders were expecting.
• In trading this morning the pair are trading steadily around last night’s closing price, with investors now turning their focus the NZ interest rate decision on Wednesday evening.
• Although rates are likely to hold, the accompanying statement will give policymakers a chance to elaborate on comments made about the relative strength of their currency and enable investors to gauge possible rate movements in the future.

Related posts:

1. Demand for the kiwi remained strong yesterday, but it has lost ground in the wake of comments from Ben Bernanke
2. A strong kiwi dollar shrugged off weak data from the US to post gains against sterling on Friday
3. The kiwi continues to climb vs sterling following strong retail sales data in NZ

Dollar selling in the market was stepped up with investors moving into the pound as the MPC minutes proved more positive than expected.

• The pound climbed over 1.66, posting a two and half cent gain against the dollar as the minutes from the Bank of England’s October monetary policy meeting struck a less dovish tone than recent comments suggested.
• Analysts said the most important story within the release was the fact that in the September meeting, governor Mervyn King thought an expansion of the central bank’s quantitative easing programme could be justified. But there was no mention of that in this latest meeting.
• Additionally, the pound was given further support after Mr King said in an opinion piece in Scotland’s Herald newspaper that, “it would be wise to take account” of the prospect of higher interest rates, heightening confidence in the UK economy.
• The dollar is up slightly in morning trading as a raft of Chinese data, though positive, failed to offer any major surprises, gaining in line with market expectations.

Related posts:

1. Sterling loses further ground to the dollar on specualtion of a further extension of QE
2. Pound was supported yesterday by the MPC minutes but has resumed its slide so far today
3. The pound posted a one cent gain against the euro yesterday, buoyed by the MPC minutes

Related posts:

1. For Britain – low interest rates and the weakening pound
2. British Pound Takes Center Stage as Bank of England Announces Interest Rates (Euro Open)
3. U.S. Interest Rates on Tap

Related posts:

1. British Pound Selling Continues With Unemployment to Set 12-Year High (Euro Open)
2. BNP Paribas expects continued decline of the British pound
3. British Pound Volatility Threat High as Currency Markets Focus on BOE Minutes (Euro Open)

The kiwi advanced over three and a half cents (1.6%) against the pound yesterday as investors showed renewed enthusiasm for risky assets.

• Rising commodity-prices and stronger-than-expected corporate earnings in the US have contributed to continued demand for higher-yielding currencies.
• In addition, investors are now pricing in that New Zealand’s central bank is likely to drop its monetary- easing bias at its meeting next week as economic data point to improvement.
• Although there has been speculation that the RBNZ has expressed concern that the strength of the kiwi is frustrating economic recovery, strong data has investors questioning whether the central bank can keep interest rates on hold until the middle of next year.
• In trading this morning, the New Zealand dollar has capped its gains, with the price currently hovering just above 2.17.

Related posts:

1. Sterling has picked itself up from multi-year lows against the kiwi, buoyed by improving economic sentiment
2. Kiwi found support from the strength of its neighbour yesterday, and as global equities rallied strongly
3. Bearish sentiment towards the pound on Friday allowed the kiwi to make substantial gains