The Forex market is a huge marketplace with trillions dollars of transactions every day. Both macro and micro economic factors influence the FX market. The economic health of a nation is the major consideration deciding the currency value in global markets. Macro-economic elements are not as complicated as micro-economic factors from the perspective of a trader. This article outlines a few macro-economic elements affecting the FX market.
Capital Markets and International Trade
Equity and debt markets are the world’s most noticeable markets whereas the capital markets are the most transparent indicators of an economy. The capital markets miss not so much of information with constantly updating information on the dealings of PSUs, companies and institutions. Like FX traders, commodity traders rely on economic data for their trades. Fluctuations in Treasuries impact the currency moves.
The trade levels between two countries act as a proxy for the relative demand of goods from a country. A country with more demanding goods and services would typically see an appreciation it its base currency. Trade deficits and surpluses demonstrate a country’s competitive status globally. Nations with a big trade deficit are net importers/buyers of international goods, resulting in more of their currency being sold to buy other country’s currency.
The politics of a country has a direct impact on its economics. Currency traders always monitor political news and events to take better trade decisions. Political events such as reforming the existing administrative system and regulations, increasing government spending, elections etc influence the currency value. The fiscal and monetary policies of any government are the most vital elements in its economic decision-making.
Traders can stay in tune with the recent economic changes by maintaining an economic calendar. Gross Domestic Product (GDP), the major economic event, requires consistent updates. Inflation is other important consideration signaling decreasing purchasing power and increasing price levels. Other reports like employment, capacity utilization, retail sales and manufacturing indexes leave traders the most valuable information to trade better.