With COVID-induced lockdowns prompting more Australians to trade shares, it’s no wonder many are taking a fresh look at the FX market.
The FX market, also known as the foreign exchange or forex market, is a global marketplace for exchanging national currencies.
Like any market, it weathers the ups and downs of global events and ever-changing monetary policies.
“The biggest driver for the FX market is the same as ever: Central bank monetary policy,” explained Matt Weller, global head of market research at City Index.
“Interest rates and more recently, asset purchases, directly impact the supply and demand for individual currencies and by extension, the exchange rate between them at any given time.”
The FX marketplace is fast moving by nature of the sheer volume of events that can shake it.
Such events can take the form of new government policies, economic reports and worldwide disasters, COVID-19 being a major one.
“The most fascinating part of the FX market is that all news impacts exchange rates,” Weller said.
“Everything from economic data to government policy to commodity prices to natural disasters to geopolitical tensions influences the FX market, so it’s crucial for traders to stay up to date on the latest developments across the globe.”
To narrow it down, FX investors need to pay attention to economic factors with the potential to sway the value of a nation’s currency.
This comes in the form of employment numbers, inflation statistics, GDP levels, retail sales and consumer confidence.
Keeping across major economic reports and data releases helps investors keep a gauge on the current strength of an economy and its currency.
Importantly, these economic indicators provide insights into the predicted strength of an economy.
Staying up to date with global news around international politics and finance is a must for successful FX traders, especially for those wanting to play a long game in the market.
Brought to you by City Index. Access over 4500 global markets on shares CFDs, Indices, Forex & Crypto with a trusted provider.
All trading involves risk.