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July 22, 2020

Characteristic and Trend of each currency in the Forex market

Know the character of each currency in the Foreign Exchange market.

Characteristic-and-Trend-of-each-currency-in-the-Forex-market Characteristic-and-Trend-of-each-currency-in-the-Forex-market

Characteristic and Trend of each currency

There are various currencies in the world, such as Dollars, Euros, British Pounds.

Knowing the characteristics of each currency before trading, can help you understand the market trend and invest efficiently.

1. USD – United States of America

The United States has the economic power to account for about 25% of global GDP.

The dollar is sensitive to trends in the US economy, interest rates, and stock prices, and particularly tends to be sensitive to interest rate trends in the US.

Among the economic indicators, the unemployment rate and the number in the non-farm sector that affect personal consumption, which is said to account for about 70% of U.S. GDP, and trade balance, GDP, consumer price index, etc. are also attracting attention.

Monetary policy is determined by the Federal Reserve Board (FRB) by holding an open market committee every six weeks.

Statements by the Fed Chairman, the Board of Directors, and the voting Fed President of the Fed may influence the market.

In addition, the dollar is often used as a key currency for settlement such as trade, and the currency is also traded via the dollar.

As a result, the dollar tends to be sensitive to global movements as well as US political and economic conditions.

In the past, when there was an “emergency” situation such as a dispute, the dollar tended to be bought through “emergency dollar buying”, but in recent years, it seems that dollar buying during an “emergency” situation such as financial unrest has become mainstream.

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2. JPY – Japan

It is one of the three main currencies along with the dollar and the euro, and the third largest transaction amount by currency.

Compared to the high percentage of dollars and euros used as settlement currencies, the percentage of yen used as settlement currencies is low, and the rise of the Chinese yuan still has a strong presence, but the yen’s position is declining.

Since the yen has been maintaining its ultra-low interest rate policy for a long period of time, it is likely to be used as a carry-in currency during normal times, but Japan’s current account balance is in the black, so it is used as safe haven when risks such as financial unrest increase.

After the Great Hanshin-Awaji Earthquake in 1995 and the Great East Japan Earthquake in 2011, there are some inconsistent phenomena such as the yen being bought at the time of the disaster, and the maximum value of the yen was updated.

In recent years, the Government of Japan and the Bank of Japan have begun to take coordinated action in order to guard against the sudden appreciation of the yen and to escape deflation in Japan.

Foreign exchange intervention is carried out under the authority of the Minister of Finance, and the Bank of Japan will act as an agent under the direction of the Minister.

Among the economic indicators, the Bank of Japan’s Tankan, GDP, machine orders, etc. are drawing attention.

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3. EUR – Europe

The euro is the first currency introduced in the world for multiple nations to use as a single currency.

The European Union (EU) is a political-economic union which main purpose is to promote a unified trade policy outside Europe.

With this economic and monetary union of the European Union (28 member countries), a single currency, the euro, was born in 11 of the EU member states in 1999, and there are now 19 participating countries.

The Greek ‘s change of government in 2009 brought to light the false reports of the budget deficit, which drastically reduced confidence in the euro.

Since then, the crisis has come a number of times, with Ireland and Portugal being forced to request assistance, but they were trying to survive the crisis by establishing the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM).

However, the European economy did not recover and the ECB introduced negative interest rates in June 2014.

After that, with the start of the Arab Spring of 2010 and the rise of the Syrian Civil War and ISIS that began in 2011, the number of refugees who avoid conflict has rapidly increased from the Middle East.

As people become more alert to the influx of refugees, populism is emerging in each country.

From 2016 onwards, European political risk has become more market aware.

The euro region accounts for about 20% of the world’s GDP.

Germany’s economic indicators, which account for about 27% of these, tend to be the focus of attention.

Unemployment rate, ZEW business sentiment survey, IFO business condition index, etc. are typical economic indicators.

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4. GBP – The United Kingdom of Great Britain and Northern Ireland

The official name of the British currency is Sterling Pound.

The pound/dollar is sometimes referred to as the cable nickname, which comes from the fact that the United States and America used to connect electronic cables to exchange rates.

The pound has long served as a payment currency for trade until the US dollar deprived itself of its position as the base currency.

When the risk in the euro area rises, it has the role of an escape currency: selling the euro and buying pounds.

In addition, because of the deep ties with the Middle East, oil money from the Middle East may flow in, which depends on UK monetary policy and economic indicators, but such money movements often affect the pound.

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5. CHF – Swiss Confederation

The Swiss franc is treated as one of the major currencies due to its high liquidity.

Due to the high credibility of Swiss banks, the Swiss franc is often preferred as a safe haven currency in the event of a geopolitical risk or financial crisis.

As a result, Swiss francs were bought against the euro after the Greek debt crisis of 2009.

On the other hand, the Swiss National Bank (Central Bank) announced in September 2011 that it will set 1 euro = 1.2 Swiss francs per euro, which was an emergency measure.

However, the exchange policy was suddenly announced on January 15, 2015.

With the Swiss franc fully strengthening and EUR/CHF plunging 41%, market liquidity seemed to have evaporated.

Hereafter, this market surprise is called “Swiss franc shock”.

In terms of monetary policy, the Swiss policy interest rate tends to be kept low in recent years, and it often fluctuates due to external factors rather than Swiss economic indicators.

The Swiss National Bank also holds foreign currency reserves and has the authority to intervene.

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6. CAD – Canada

Canada is one of the resource-based currencies.

The currencies of resource-rich countries are easily affected by commodity prices such as energy, agricultural products, and precious metals, and are also sensitive to the global economy.

As the price of goods (primary products) rises, the domestic economy is enriched, so it can generally be said that the home currency is also likely to be stronger.

Also, because of its high geographical dependence on the US economy, it may be sensitive to US economic trends and economic indicators.

Major industries include agriculture and energy industry.

Blessed with mineral resources, it is a country producing uranium, gold, oil, and so on.

The Bank of Canada announces monetary policy eight times a year.

It will be announced four times a year after verifying quarterly GDP.

In addition, the Central Bank of Canada acts as a representative of the Treasury Department.

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7. AUD – Australia

Australian dollar is commonly known as Aussie.

Australia has the same resource currency as the Canadian and New Zealand dollars.

The major industries are mining and agriculture, and the characteristic is that the market price often changes due to fluctuations in the commodity prices of primary products.

In addition, geographically it is close to Asia, and in particular in recent years, the proportion of resource exports to China has become large, so it is becoming more and more dependent on China’s economic trends.

Australia did not experience negative GDP growth during the global recession following the Lehman Shock of 2008.

Reserve Bank of Australia sets inflation target at 2-3% y/y, monetary policy announced on first Tuesday of every month (not held in January), unemployment rate, number of new employees, trade balance etc will be announced.

The Reserve Bank of Australia also has the power to take the lead in managing and intervening in foreign currency reserves.

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8. NZD – New Zealand

The New Zealand dollar is positioned as a resource-based currency, but Australia and Canada are mainly minerals and energy, whereas New Zealand is mainly agricultural products.

Due to geographical and economic and political ties with Australia, the New Zealand dollar is more likely to move in tandem with the Australian dollar.

Because the volume of New Zealand dollars’ is less than that of Australian dollars’ and therefore fluctuates significantly, arbitrage between two currencies can also be used by taking advantage of this trend.

Although New Zealand’s main export destination is Australia, in recent years exports to China account for about 15%, so it can be said that it is easily affected by China’s economic trends.

The Reserve Bank of New Zealand has set an inflation target of 1-3% year-on-year and has the authority to intervene.

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9. SGD – Republic of Singapore

The Monetary Authority of Singapore (MAS), which is equivalent to the central bank of each country, conducts a wide range of monetary policy and minting operations.

The biggest feature of Singapore Dollar is the managed floating exchange rate system based on the basket system.

The currency basket system is a system in which the currencies of major trading partners/regions are weighted and averaged by the amount of trade with each country/region.

MAS is reviewing the constituent currencies and ratios of the currency basket from time to time, but no details will be announced.

In Singapore, where the economy scale is small, a policy of completely separating foreign currency transactions from home currency transactions in order to avoid fluctuations in exchange rates due to currency speculation and to stabilize the Singapore dollar Policy.

Specifically, it is obligatory to obtain pre-approval of MAS for loans above a certain amount (more than S$5 million) to non-residents, restrictions on entry into the S-dollar handling business depending on the type of banking license, and procurement from domestic capital markets.

There are restrictions on overseas use of Singapore dollars.

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10. HKD – Hong Kong

The current system of Hong Kong dollars is said to be the US dollar’s peg (fixed US dollar) system, and banknotes are issued by private banks with a fixed exchange rate of HK$7.8 per US$1.

Currently, the three banks involved in the ticketing business are the Hong Kong-Shanghai Bank, Standard Chartered Bank and Bank of China, which deposit US dollars in the exchange fund of the Hong Kong Monetary Authority and each bank is issued a fixed exchange rate in exchange.

They issue unique banknotes (designs and sizes are different) based on the debt certificate.

Since the Hong Kong dollar is fixed to the US dollar, the fluctuation factors of the US dollar are almost the same, but due to the status as a special administrative region of China, it is rarely affected by the movement of the renminbi (CNY/CNH).

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11. ZAR – Republic of South Africa

South Africa (South Africa) Rand is considered as an emerging market currency together with the resource country currency.

Most of the resources are gold, diamond, manganese, chromium, platinum, and precious metals (rare metals), and South Africa’s gold boasts the world’s highest production volume.

For this reason, it is a currency that is sensitive to the global economy.

South Africa was invited to the BRICs Summit in 2011 and joined the new BRICs.

Since the country occupies a large economic position in Southern Sahara, it is easy to collect funds when the world economy is strong, but it is easy for funds to escape during the down-down.

The Reserve Bank of South Africa has set an inflation target of 3-6% and is working to stabilize prices.

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12. MXN – Estados Unidos Mexicanos

The Mexican peso also has the aspect of being a resource-rich currency because Mexico is an oil-producing country, but it has a North American Free Trade Agreement (NAFTA) with the United States and Canada for about 80% of exports are large, and it has the aspect of an emerging market.

Therefore, it can be said that it is easy to react to the US economy and global economic trends.

The characteristic of the monetary policy of the Central Bank of Mexico (Banco de Mexico) is that it is highly linked to the monetary policy of the United States.

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13. NOK – Kingdom of Norway

The Norwegian Krone is considered to be one of the currencies of the resource-rich country because the major Norwegian industry accounts for about 50% of the export value of the oil and natural gas sector.

As with other resource-based currencies, it is subject to the global economy and trends in resource prices.

The Norges Bank is making financial adjustments to stabilize prices at the inflation target set by the government (2.5% y/y).

In monetary policy, they weighs importance to production and employment as well as inflation.

Norwegian is not a member of the EU due to concerns over loss of sovereignty, but due to its geographical proximity to the euro area, it may be affected by fluctuations in the euro.

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14. CNY, CNH – People’s Republic of China

China is a permanent member of the United Nations and is a country with a strong voice in the international community, despite being a developing country.

In addition, the reform and opening policy have promoted capitalism in the economy, and has continued to grow significantly in recent years as a “world factory”.

In China, under the policy of promoting the renminbi to the outside world, renminbi (CNY), which is managed under the strict foreign exchange system by the People’s Bank of China, is traded in mainland China, while Hong Kong is in the offshore market.

Positioned as the gateway to the CNY, it has a double exchange rate that allows free financial transactions to the Renminbi (CNH) in the offshore market.

The renminbi suggests a strong renminbi in both the economic and political environments, such as the relatively robust domestic economic situation, the tightening of monetary conditions in response to it, and requests from overseas to rectify trade imbalances.

Moreover, since the People’s Bank of China (Central Bank) also declares the internationalization of the renminbi, it is strongly expected that the renminbi will rise in the future because it is necessary to entrust the price determination to the market at any stage.

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15. TRY – Republic of Turkey

Turkey is a country that straddles the end of the Balkan Peninsula in Eastern Europe and the Anatolian Peninsula in Western Asia.

Famous city is Istanbul located in the Bosphorus Strait connecting the Black Sea. The capital is Ankara in central Anatolia.

Economically, the light industry is the main focus.

Recently, companies have expanded into Europe as automobile export bases, and expectations are rising as a bridge for China’s Belt and Road strategy to Europe.

While the low interest rate policy continued in developed countries, the policy interest rate of 24.0% and the high interest rate currency were attractive, and despite being shocked several times, as a high interest rate currency of Australian dollar / NZ dollar are popular in the Forex market.

As a medium- to long-term investment currency, if leverage is suppressed, it is one of the attractive currencies for investment.

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