Watching for economic reports from around the world is important and should be based on the currency pairs you intend on trading in the foreign exchange. There are eleven reports released by most countries which can affect currency rates. Some of these reports are not as important in exotic currency countries. Even in Australia there are five reports to watch out for versus the other six. These five reports are GDP, inflation, interest rates, employment, and trade balance. You should watch these reports and how they affect five other concepts: trade flows, money supply, investment flows, investor fear, and government intervention.
Foreign Exchange: The Top Five Reports
Five reports are prepared for each country at various times of the year. These reports will vary in the release for each country. Some come out in the same day or just after a different country. You definitely need a calendar that tells you which reports are going to come out and when. Keeping track is essential to foreign exchange trades. Some countries do have more reports than others, but the top five reports mentioned here are the ones to pay particular attention to.
Inflation- this is a report assessing the growth of the country, economically. Higher inflation means better growth.
Interest rates- this report is going to determine if interest rates will need to change and the change the central bank has decided to make. In times of high inflation the interest rate is going to rise.
GDP- Gross domestic product is another growth report, which looks at manufactures and product goods. If there is a rise in production and exporting it is seen as a good report.
Employment- also known as labour report for the foreign exchange it is an assessment of employment numbers such as if they have increased in jobs or unemployment. Non-farm payroll is another consideration for some countries that go with this report.
Trade balance- if the deficit gets worse, there is an issue with the exports in a country, which can weaken the currency. If more exports are made then the deficit gets smaller or the surplus gets larger. It is a good sign to see the deficit get smaller and the surplus grow for the most part. An imbalance in any direction can be bad.
Foreign Exchange Affecting Five Drivers
Just as there are going to be five reports, there are five areas that tend to be the “drivers” of foreign exchange. It means that five things will tell you how the currency is going to strengthen or weaken based on the reports.
If the labour report shows an increase in jobs then trade flows and investment flows increase. When the reports are positive the money supply is going to decrease because there is more demand for it. Investor fear is also going to show improvement in confidence, meaning there is more of it in the market. Lastly, you have government intervention that can drive changes in the foreign exchange market. Intervention is necessary depending on what the reports say. A bad report might have the interest rate going down to account for issues, while inflation highs have to be counteracted with a higher rate.