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Central Bank rates

Cuong Truong (Cryptocurrency)
Mar 01 2015 at 14:20
178 inlägg
I'm new to fundamental analysis, so what is the meaning of Central Bank rates?

I've attached a chart to show you the rates.

In the chart it shows:
NZD: 3.50%
USD: < 0.25%
EURO: 0.05%

chart source: https://www.forexfactory.com

Does that mean, the NZD currency is stronger than the USD currency?

Bilagor:

I trade Forex using my Bollinger Trend PRO mt4 indicator.
growthera
Mar 02 2015 at 10:20
86 inlägg
It is the interest rate the central bank charges to the local banks. So for NZD, a bank earns money when they park money at the central bank. Also, it is more expensive to borrow money. One reason they lower interest rates, is to stimulate the economy. By making borrowing cheaper they encourage investments. Have a look also at investopedia.com
Cuong Truong (Cryptocurrency)
Mar 02 2015 at 16:46
178 inlägg
growthera posted:
It is the interest rate the central bank charges to the local banks. So for NZD, a bank earns money when they park money at the central bank. Also, it is more expensive to borrow money. One reason they lower interest rates, is to stimulate the economy. By making borrowing cheaper they encourage investments. Have a look also at investopedia.com

Are you saying that it has nothing to do with the currency's strength?
I always thought that lower interest rate mean the currency is stronger then other currency.
I trade Forex using my Bollinger Trend PRO mt4 indicator.
growthera
Mar 02 2015 at 16:54
86 inlägg
a currency's strength is highly influenced by the interest rates. e.g. now that there is talk of the US maybe increasing rates, the USD strengthens. So a lower interest rate does NOT mean the currency is stronger. If anything it is the opposite. When an economy is bad (e.g Europe) they lower interest rates, and it weakens the currency, which is many cases is what they want.
Cuong Truong (Cryptocurrency)
Mar 02 2015 at 16:58
178 inlägg
growthera posted:
a currency's strength is highly influenced by the interest rates. e.g. now that there is talk of the US maybe increasing rates, the USD strengthens. So a lower interest rate does NOT mean the currency is stronger. If anything it is the opposite. When an economy is bad (e.g Europe) they lower interest rates, and it weakens the currency, which is many cases is what they want.

Based on the chart above, I can safely assume the NZD is stronger than the CHF because NZD has 3.5% rate and CHF has -0.75% ?
I trade Forex using my Bollinger Trend PRO mt4 indicator.
growthera
Mar 02 2015 at 17:10
86 inlägg
it's not that simple, everything is relative, not absolute. What I mean is, if there starts to be a probability that NZD would lower interest rates (even if it's currently high) then NZD is likely to go down versus another currency that keeps it's rate stable.
If 2 currencies lower rates or are on a QE program then it's tougher to judge fundamentals (e.g. EURJPY)
Best recent example is what happened to the aussie when they lowered rates.
You also have to take the carry trade into account. If you buy NZD you receive swap, if you sell it you pay, so it's more OK to keep a longer term trade open with positive swaps, which makes them slowly grind higher..
So I don't look at that as strong or weak, I look at it by rate change expectations versus the expectations of the other currency. The absolute rate matters of course also for the swap.
Cholipop
Mar 02 2015 at 22:45
406 inlägg
Cryptocurrency posted:
growthera posted:
It is the interest rate the central bank charges to the local banks. So for NZD, a bank earns money when they park money at the central bank. Also, it is more expensive to borrow money. One reason they lower interest rates, is to stimulate the economy. By making borrowing cheaper they encourage investments. Have a look also at investopedia.com

Are you saying that it has nothing to do with the currency's strength?
I always thought that lower interest rate mean the currency is stronger then other currency.

 It has nothing to do with currency strength at all. As currencies will increase or decrease rates based on GLOBAL conditions, instead of it being a reflection of their economy. Please note that rates, and news events are nothing more then fluff. Fluff is just news to be a kick start in big moves which we see.
Bob LLewellyn (ForexAssistant)
Mar 04 2015 at 06:49
465 inlägg
What makes a currency strong is how many people are buying it. The AUD/NZD is really low, actually setting a new record for low since the new spot market came into effect in 2001. The first currency is the aud, if the price is high then it takes more nzd to buy one aud. That means that the aud is strong compared to the nzd. Or it means that the nzd is weak compared to the aud. So the second currency listed is strong at the bottom and the first listed currency is strong when the price is at the top.

Now what makes a price go up? Lots of people buying. When a big difference in the interest rates of each currency creates a large positive swap, then more people will want to buy that pair and tend to push the price up. That is how the central banks adjust their currencies to keep it in line with all the other currencies. Now I just told you something very important that can help your trading if you figure what it means.

Bob

PS, now is a good time to start buying the audnzd because it is so low.
where research touches lives.
Cuong Truong (Cryptocurrency)
Mar 19 2015 at 04:53
178 inlägg
Here's an interesting article I found:

So... Higher interest rate means weaker currency's strength for the USD?


NEW YORK, March 18 (Reuters) - 'The dollar plunged across the board on Wednesday after the Federal Reserve signaled an interest rate increase as early as June'
https://www.reuters.com/article/2015/03/18/markets-forex-idUSL2N0WK2WG20150318
I trade Forex using my Bollinger Trend PRO mt4 indicator.
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