Inside the Currency Market: Mechanics, Valuation, and Strategies

Interest Rates

Most important in terms of currency pairs is the purpose of trade and movements in interest rates, and interest rates are determined first by the most interest-rate sensitive instruments. In the United States, Fed funds is what prices bonds and bonds are what determine direction for stock markets. OCR determines New Zealand and Australia movements in terms of bonds and stock markets.

Consider Fed funds contracts begin at $5 million, $5 million for Australia OCR contracts. The course is to follow the smart money. But during the course of any trading day, rates can change up or down depending on market circumstances, so the focus switches to bonds, yields, and stock markets. Stock markets are always ancillary indicators, while bonds, ...