Normally I don't get involved trading system discussions, but Dale asked me to chime in on the interest rate discussion.
All other things being equal or held the same, an increase in a country's interest rates will be a positive for its currency. If it happens unexpectedly - a surprise rate move - the market will normally rally that currency. If the move was expected, generally the market reaction will be muted and potentially even faded. All of this would be flipped around for a rate decrease, of course.
That said, rates are not isolated things. You have to consider the underlying reason for rate changes. For example, if rates are rising because of rising inflation, that's not going to be a positive for a currency.
Also, falling interest rates are often indicators of economic weakness in a country, which makes the whole currency depreciation that much more.
Keep in mind that in the big picture there are two supply/demand drivers of exchange rates. One is trade. The other is capital flows.
|