Global Interest Rates

I believe there is a scenario whereby Canada Could LOWER Interest rates.
Any Takers?

That's a possibility.
BOC is not too happy with the strength of loonie and lower interest rates would probably weaken it. I might be biased though.... I'm renewing mortgage next Feb....

Seeking an simple yet comprehensive answer as to why the following occurs with carry trade favorites. Using only the Yen pairs for my example.

I have a few ideas...yet haven't ( can't? ) wrapped my mind around it.

Hopefully the example will ask my question far better than I can.....

Using Positive rolls only - from FXCM ( they are handy on the tradestation )
All will be per day / usd$ / per $100k lot

NZD 8.25% / JPY .5% = $15.00
GBP 5.75% / JPY . 5% = $27.50
AUD 6.50% / JPY .5% = $11.70
EUR 4.00% / JPY .5% = $11.10
USD 5.25% / JPY .5% = $11.90

I imagine my Q? just pops out. Why is this??

Maybe this has been kicked around elsewhere on the FF, yet I haven't found it. And if I've missed it, maybe someone knows the location of the answer & can post it here.

Thx

Hopefully this will help more than just me
Fxj

Fxj - I think you have to look at the actual composition of the pair in terms of standard lot sizes(100K of the base in terms of the second ccy - eg, 1 lot Eur/USD is based on the cost of 100K euros in dollars, 1 lot USD/JPY is based on 100K USD in yen), and then take the interest from money market rates including spreads (the interest rates you quote are target rates set by the CB's, only, as usual, an approximation to reality )

Definitely, especially if the Fed lowers by half a percent. But there is no Cad rate announcement till October, so until then they'll have to handle it via overnight rates. I noticed on the BoC site the average overnight rate for August was already 8.5 bp below the target rate, I assume it's currently at least that low now. Don't know where to find that info atm though.

This in an excerpt from an article I wrote earlier this year.........(the rates and quotes have changed slightly so plug in your own numbers)

(contract notional value x (base currency interest rate- quote currency interest rate)/(365 days per year)) x current base currency rate = daily rollover interest debit/credit

Here's an example for the GBPJPY:

(100,000 GBP x (.0525 - .0025))/365 = 13.7 GBP

To convert to USD simply multiply by the current exchange rate (GBPUSD = 1.9496)

13.7 GBP x 1.9496 = 1.9511 = 26.71 (this step is not necessary if the base currency is in USD)

Halifax and Phil...

Thanks for the info and equations....

A light bulb just went on!

Fxj

No, thank you. I've been doing this off and on since the late 90's, yet I never really thought about precisely which rates they use, I tend to ballpark things by target rates for the appropriate CB's. But I really don't know what the reality is, and while the difference is small I would be really curious to know what the actual mechanics of it are. Time for a little R&D, maybe on the weekend.