In Australia, what does your country import? What does the USA import? What goods or services do China, Japan, New Zealand, and the Eurozone countries import? Depending on the currency pairs you intend on forex trading it is important for you to figure out what the countries import. Imports, like exports, are a part of trade balance and therefore money flow. Money supply and currency value are affected by what is being imported into a country. The following is going to assess this topic in further detail.
Forex Trading: Why you care about Imports
If you know the primary services and goods a country is importing then you know which markets and prices you need to follow in order to trade that currency in a pairing. It is also going to be a sign that money supply of that local currency is about to change.
Japan is a good example of importing for oil. Behind the USA, China, and the European Union is Japan for importing oil. When Japan brings oil to their shores, it changes the oil price because they need so much. Oil for those who are beginners to forex trading is purchased in USD. Even though the USA may not be selling the oil it is still sold in USD. If the price of oil goes up then the demand for USD has to increase to cover the cost of the import. The JPY will be exchanged for USD. The country exporting the oil will be paid in USD.
Since most of the countries are in the Middle East selling oil, you will often see the USD being kept, but there is a potential for the USD to be exchanged by the exporter thus forex trading USD pairings can change quickly. At one moment the USD is in demand and then repatriation of assets occurs for the USD to be turned into the local currency of the exporter.
If the oil prices are going down it is not favourable for an oil trade for the USD. This is because the USD will become a little weaker during the demand since the price of oil does not require as much USD swapped out for the Yen. It could actually increase the Yen a little bit.
Forex Trading and Further Import Discussions
Just knowing what a country imports is not enough to understand the forex trading relationship. You also need to understand the trade balance. Remember, with trade you have a surplus or deficit. If a country is importing more than they are exporting it can have a deficit. The deficit might be corrected with new exports or it could only correct a portion of the deficit. Again, the USA is a good example because it has the worst deficit, which is in trillions of dollars. It would be hard for the USA to have a surplus given its current standings. Sometimes a deficit can weaken the currency. You have to watch for weakening currencies in forex trading based on import skewing. Some countries do not have a lot of exports, so they will always have a deficit.