How Interest Rate Increases Drive Currency Prices
A common way to think about U.S. interest rates is how much it's going
to cost to borrow money, whether for our mortgages or how much we'll
earn on our bond and money market investments. Currency traders think
bigger. Interest rate policy is actually a key driver of currency
prices and typically a strategy for new currency traders.
How Rising Gold Prices Affect Currencies
It's not hard to understand why we've experienced a run-up in gold
prices lately. In the US, we're dealing with the threat of inflation
and a lot of geo-political tension. Historically, gold is a
country-neutral alternative to the U.S. dollar. So given the
inverse relationship between gold and the U.S. Dollar, currency traders
can take advantage of volatility in gold prices in innovative ways.
Translating Rising Oil Prices to Currency Trading Opportunities
Equity investors already know that higher oil prices negatively impact
the stock prices of companies that are highly dependent on oil such as
airlines, since more expensive oil means higher expenses and lower
profits for those companies.
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If you believe the price of oil will
continue to increase for the near term, you could express that
viewpoint in the currency markets by once again favoring
commodity-based economies like Australia and Canada or selling other
energy-dependent countries like Japan.
Put your opinions into action. Register for a free practice account and test your strategies in a real-time environment!
