Interest Rates & Currency Prices
Some images for you guys to think about.
AUDUSD 2009 - Present
Here is AUDUSD since 2009
USD Fund Rate Since 2009
AUD Cash Rate Since 2009
Notice how the whole time the Fund Rate stayed the same 2009-2015. Next note how the Cash Rate changed over the same period.
Then look at how the AUDUSD moved. Fund rates stayed the same. AUDUSD price followed the direction of the Cash Rate.
Next, let's look at an example that is not as obvious to what is going on here.
AUDCAD 2009 - Present
AUD Cash Rate Since 2009
CAD Overnight Rate Since 2009
2009 (Pink) - 2010 (Purple) Both rates stayed flat. AUD was higher than CAD so AUDCAD appreciated over this time.
2010 (Purple) - 2011(Blue) AUD Rate was continually hiked. CAD Rate was also hiked but remained much lower than AUD's. AUDCAD appreciated over this time.
2011 (Blue) - 2012(Teal) Both AUD and CAD Rates remained the same. AUD was still higher though so AUDCAD continued to appreciate over this time.
2012 (Teal) - 2014 (Green) AUD Rates were cut for 2 years. During the same time, CAD Rates stayed the same. AUDCAD depreciated over this time.
2014 (Green) - 2015 (Yellow) AUD Rates stayed the same. CAD Rates Basically did to(cut at the very end of 2014). AUDCAD Bounce around this whole year and ended almost at the exact price it started in 2014.
2015 (Yellow) - 2016 (Orange) AUD Rates were cut at the start of the year, then remained the same. CAD Rates basically did the same thing. AUDCAD again bounced around for a year, ending slightly higher than where it started, as expected as AUD has a higher rate than CAD.
2016(Orange) - 2017 (Red) AUD Rates were again cut early and then held low. CAD Rates remained the same. AUDCAD again basically ended the year where it started.
AUD did not fall against CAD, even though AUD cut Rates while CAD held theirs because AUD still had a higher rate in general. There was no reason for it to truly depreciate.
Now even if AUD continues to cut rates, AUDCAD will not depreciate that much until their rates approach parity. If they get close, and RBA still says they want to cut them further while BOC says they want to keep them the same or hike them. AUDCAD would then start to really depreciate.
I hope this helps paint a picture how currency prices follow interests rates.
And remember, this whole time the banks are always talking about which directions they are going to take rates. Which will then take price.
Next, we are going to look at how Growth, Employment, Inflation and Production changed during this time. As this is what the banks are watching when they are deciding what to do with interest rates.
Some images for you guys to think about.
AUDUSD 2009 - Present
Here is AUDUSD since 2009
USD Fund Rate Since 2009
AUD Cash Rate Since 2009
Notice how the whole time the Fund Rate stayed the same 2009-2015. Next note how the Cash Rate changed over the same period.
Then look at how the AUDUSD moved. Fund rates stayed the same. AUDUSD price followed the direction of the Cash Rate.
Next, let's look at an example that is not as obvious to what is going on here.
AUDCAD 2009 - Present
AUD Cash Rate Since 2009
CAD Overnight Rate Since 2009
2009 (Pink) - 2010 (Purple) Both rates stayed flat. AUD was higher than CAD so AUDCAD appreciated over this time.
2010 (Purple) - 2011(Blue) AUD Rate was continually hiked. CAD Rate was also hiked but remained much lower than AUD's. AUDCAD appreciated over this time.
2011 (Blue) - 2012(Teal) Both AUD and CAD Rates remained the same. AUD was still higher though so AUDCAD continued to appreciate over this time.
2012 (Teal) - 2014 (Green) AUD Rates were cut for 2 years. During the same time, CAD Rates stayed the same. AUDCAD depreciated over this time.
2014 (Green) - 2015 (Yellow) AUD Rates stayed the same. CAD Rates Basically did to(cut at the very end of 2014). AUDCAD Bounce around this whole year and ended almost at the exact price it started in 2014.
2015 (Yellow) - 2016 (Orange) AUD Rates were cut at the start of the year, then remained the same. CAD Rates basically did the same thing. AUDCAD again bounced around for a year, ending slightly higher than where it started, as expected as AUD has a higher rate than CAD.
2016(Orange) - 2017 (Red) AUD Rates were again cut early and then held low. CAD Rates remained the same. AUDCAD again basically ended the year where it started.
AUD did not fall against CAD, even though AUD cut Rates while CAD held theirs because AUD still had a higher rate in general. There was no reason for it to truly depreciate.
Now even if AUD continues to cut rates, AUDCAD will not depreciate that much until their rates approach parity. If they get close, and RBA still says they want to cut them further while BOC says they want to keep them the same or hike them. AUDCAD would then start to really depreciate.
I hope this helps paint a picture how currency prices follow interests rates.
And remember, this whole time the banks are always talking about which directions they are going to take rates. Which will then take price.
Next, we are going to look at how Growth, Employment, Inflation and Production changed during this time. As this is what the banks are watching when they are deciding what to do with interest rates.
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