US Dollar moves are influenced by mainly 4 factors. These include;
1. FED Interest Rates
FED announcements on interest rate put most traders on panic.
Interest rate news trend in the Forex market and cause the most movements in the markets.
If the FED decides to raise interest rates, demand for the US Dollar increases as well as investment.
On the other hand an expected fall in interest rates lead to sell off of the US Dollar.
Since gold is an inflation hedging safe haven, most investors usually run to find safety in times when the dollar suffers inflation.
Gold maintains its intrinsic value whether there inflation or not.
Therefore, appreciation in gold is always a sign that the US Dollar is not doing good.
However, if gold falls in value. We see a rise in the dollar. Investors sell of gold and buy the dollar as a safe haven.
3. Economic developments in the US
An expansion in the US economy is a sign of economic development.
This attracts more investors to invest in a high yielding economy and hence increases in demand for the dollar.
This leads to value appreciation of the dollar.
Most of the transactions around the world are carried out using the US Dollar as a means of exchange.
This simply means that economic development in any of the countries contribute to the strength of the Dollar.
This increases demand for the Dollar to purchase commodities.
4. Bond Yield Differentials
If the bond yield in US falls compared to other foreign countries, investors are likely to liquidate their accounts.
They will opt to invest in countries with high yield investments.
This way, the US Dollar will fall in value and the reverse is true.
Getting to know the US dollar
The USD is the leading currency traded in the foreign exchange market.
It’s the only currency that can make a major.
It is also known as the” Buck” named after buckskin (leather made from a skin of a buck or male deer).
This was the unit of trade among the Indians and Europeans in early 1750s.
Traders still tag it at the dollar.
US Dollar Liquidity.
U.S.A is the largest economy and the Dollar is the main value for most commodity goods.
In this case,
The USD cannot avoid making every day’s transaction. Every time a commodity there is a transaction, a dollar is exchanged.
Also, some economies peg the Dollar to their currencies for value addition.
Especially the currencies for the merging countries such as; the Canadian dollar and the Australian dollar.
MAJOR ECONOMIC DATA THAT moves the US Dollar
The major economic data that moves the U.S Dollar include;
1. Non-Farm Payroll(NFP)
The NFP measures the changes in the number of people employed in USA in a months.
This includes only data of people employed in the private sector minus those under farming.
It is released monthly by the United States department of labor.
NFP greatly moves the USD Dollar and is released every 1st Friday of the month.
The NFP data represents the number of jobs added or lost in the economy over the months excluding the farming industry.
If data release is more than expected, it shows that businesses are hiring more people.
It is a sign for more economic growth and increase in disposable income hence increase in the consumers’ confidence.
This encourages more production hence economic growth and a strengthening USD.
The reverse is true for less than expected data.
2. Gross Domestic Product (GDP)
Another important factor that moves the US Dollar is GDP. This measures the health of the economy.
It shows the country’s total value of final goods and services produced with in the country for a given period of time.
If GDP rises, the interest rates also tends to rise attracting more foreign investors to the country.It leads to appreciation of the Dollar.
On the other hand, if the GDP falls it shows poor health of the economy which results to a fall in USD.
3. Retail sales
Measures the change in total value of goods bought at a retail level per month.
Higher sales show a strong economy and the fall in the retail sales imply a weak economy.
The retail sales track the details of consumer spending which is a major influence in the factors of economic growth.
4. the consumer price index (CPI)
CPI moves the US Dollar since measures the change in the price of consumable goods & services.
These include food and energy prices, housing , transportation,clothing, housing and entertainment.
The CPI measures inflation in an economy relying on the cost of goods and services consumed per household.
University of Michigan consumer sentiment
The consumer sentiment report from the university of Michigan is released every month showing the attitude consumers have towards the economy.
HOW TO TradE news ON USD Dollar
Talking of news, the Fed policy, moves the US dollar especially the interest rate decisions.
When the policy is to the increase the rates, most investors rush to invest in the US economy and they buy more of the dollar.
This is when the dollar is rising; time to go long.
On contrary, when the policy is to cut interest rates, those holding the dollar start selling it off.
Here you will see the dollar falling down so you can short the dollar.
Other economic news that moves the US Dollar are, unemployment rate, consumer price index, NFP and GDP.
For instance if the news release is favoring the dollar, go long if the USD is a base currency and short if the dollar is a quote currency.
If for example,
NFP news turns out to be greater than expected, it indicates that there are many jobs created which is a sign of economic growth and a strong USD.
So we buy the dollar.
In this case, we shall go long on USD/JPY, USD/CHF, USD/CAD and short EUR/USD,GBP/USD,NZD/USD,AUD/USD.
On the other hand,
if the NFP news is less than expected, it is an indication that many people have left their jobs.
This is a sign of increase in unemployment hence a collapsing economy as well as a weak dollar.
So we short pairs where the Dollar is the base USD/JPY, USD/CHF, USD/CAD and buy when the dollar is a counter /USD,GBP/USD,NZD/USD,AUD/USD.
The US dollar index (USDX)
The dollar index compares the USD with the basket of other currencies.
This is another way to gauge the strength of the USD with other currencies especially the EUR. Because it covers a big percentage of the index.
When trading the EUR/USD and Dollar index is trending upwards , it shows that the dollar is strong relative to other currencies in the basket (index) including the Euro.
You can also use this kind of relationship to know what the EUR/USD is up to.
Sell EUR/USD when the dollar index is trending up and buy when the dollar index is trending down.
The USA and world’s economies
An expansion in the world’s and US economy increases demand for the US dollar.
USA has the largest economy and the dollar is the main value for most commodity goods.
The USD cannot avoid making every day’s transaction.
Every time you make a transaction on commodity goods, a dollar is exchanged. So, when the demand for the dollar increases, Its value rises too.
Under this circumstance,
There are high levels of investments and production, more demand for products.
Also, consumption increases, expenditure increases and increase in capital inflow into the US economy.
You can buy the dollar when the economy shows such a booming mood. Otherwise the reverse is true.
UNITED STATES FACTS & FIGURES
Country Name: United States of America
Abbreviation: U.S.A Or U.S
Government Type: Constitutional Federal Republic
Capital: Washington, D.C
Administrative Divisions: 50 States and 1 District
Independence: 4th July 1776
Neighbors: Canada, Mexico, Puerto Rico And Cuba
Location: North America Borders North Atlantic Ocean And North Pacific Ocean Canada And Mexico
Area : 9833517Sq Km, Land 9,147,593sqkm And 685924sqkm Water.
Head Of Government (2020): President Donald Trump
Currency: US Dollar (U.S.D)
Imports and exports
Imports: $250.7 billion(2018).01%, Germany 5.17%, Mexico 13.20%.
Exports: $200.2 billion (2018)
Export Partners: Canada 18.39%, Mexico 15.84%, China 7.97%, Japan 4.36%, UK 3.81%
Time Zones: GMT -10,GMT -9, GMT -8, GMT -7, GMT -6, GMT -5
Major Cities: New York, Beach-Santa Ana, Chicago, Miami, Dallasa-Fort Worth, Washington D.C (Capital City)
MONETARY & FISCAL POLICY moves the US dollar
The Federal Reserve Board (FED) is the U.S.A body that implements the state’s monetary policy.
When that word “FED” appears in any speech, news, every trader’s ears rise up.
It works like foreign exchange market’s power house. Should I say a main socket or a circuit breaker.
All in all it’s the main controller of the Dollar.
Like any other Central Bank, FED implements monetary policy through control of the money supply into the US economy.
It’s main objectives are:
- To keep consumer prices of goods and services stable (price stability)
- Ensure sustainable economic development and maximize employment.
- To modulate long term interest rates
Federal Reserve(FED) governed by the FED president Jerome Hayden “Jay” Powell and appointed Board of governors.
These form the Federal Open Market Committee( FOMC).
The committee consists of 7 members of board of governors and 12 regional presidents but only five vote at any given time.
It is an independent body and its monetary decisions do not need approval from the president or anyone.
The FED uses 3 tools to implement monetary policy,namely:
- Open Market Operations
- Discount Rates
- Reserved Requirements.
Open Market Operations
It involves selling and buying of government securities such as bonds, treasury bills and notes as a way of regulating money in circulation or controlling inflation.
It provides liquidity to banks to meet their short-term needs due to seasonal fluctuations in deposits and unexpected big withdraws.
This is the Percentage of deposits required by the central bank from other banks
The U.S. treasury keeps checking its tax deposits accounts and outgoing government expenditures with the FED.
This enables it to monitor government money supply in the economy and to determine when to increase or reduce taxes.
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