Sunday, January 3, 2016

Real Long Term Trend - Direction of Interest Rate...

The best pairs untuk trend trader ialah 'strong vs weak'.. Kita boleh lihat clear direction 'long term trend'... So apabila U.S naikkan interest rate recently.. Adakah ia baik untuk Forex Trader?

Impact To Yen

.. the yen dropped to its lowest level against the dollar in more than 12 years on Thursday, powered by expectations that the United States will hike interest rates this year and the Bank of Japan will crank up monetary easing. The currency briefly touched ¥124.30 in Tokyo midday trading, its lowest since late 2002, and returned to the level later in the day....

The Fed's rate hike means that risk markets, including stock markets, led by vast amounts of investment money resulting from monetary easing, will soon end. First of all, stock prices have entered adjustment phases out of shock. That has brought lower stock prices and bond prices, and higher interest rates on the U.S. market. Accordingly, it has resulted in a weaker yen on exchange markets.

The U.S. real interest rate and the real yen-dollar exchange rate are closely correlated. The dollar tends to rise when real U.S. interest rates are high and fall when real interest rates are low. This relationship results because high interest rates attract speculative capital into the U.S. from Japan and elsewhere, while low interest rates reduce or eliminate these capital inflows.

Thus, a reduction in the U.S. interest rate should lead to a decline in the value of the dollar relative to other currencies, including the yen.

The rise in the real U.S. interest rate since 1996 has been caused by falling inflation rates, not by any explicit change in Fed policy. The nominal federal funds rate has essentially been held constant, but the rate of inflation has fallen from 3.0% in 1996 to 1.7% in May 1998 (on an annual basis). As a result, real short-term interest rates have increased by almost 1.5 percentage points. This increase has contributed to the yen’s slide by making U.S. financial assets more attractive to investors from Japan and other countries and stimulating demand for the dollar. Thus, the U.S. must share part of the blame for the decline of the yen.

Impact To AUD

An increase in US rates would serve to reduce the interest rate differential between Australian and US rates even further. This would add to the pressure of slowing demand from China, and falling commodity prices, in pushing the Australian dollar even lower. Once the Fed increase rates, it is likely that the impact on the US stock market will be negative.The inter-connectivity of global stock markets would suggest Australian stocks will follow US stocks lower.  

Rising US interest rates won’t affect the housing market immediately. But their longer-term effects on Aussie interest rates are important.

For property investors, the key is whether a US rate rise influences the RBA’s own rate policy. Rising US interest rates should ease pressure off the RBA lowering rates at home. A US rate hike strengthens the US dollar. Which weakens the Aussie dollar in turn. Which is the RBA’s ultimate goal. That would give the RBA less reason to lower interest rates.

In that case, housing demand would dampen. The investment market thrives on low rates. It looks to interest rate cuts to bolster investment growth. And it relies on strong demand to lift prices over time.In short, rising US interest rates would delay RBA’s own policy moves. This will only slow property price growth in Australia.

Impact On CAD

Canada’s central bank is unlikely to adjust its trendsetting lending rate any time soon, perhaps not for another year or more.Stephen Poloz, the Bank of Canada governor, has already cemented his view that “divergence” in monetary policy should not be feared — it’s a natural progression.

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