What effect do the stocks of a country have on its currency? Does currency get stronger if the price of stocks rises? Can someone explain in detail please?
This is what I think: if the stocks in US go up, it will attract foreign investors to buy the stocks and to buy those stocks, they will first buy USD. If so many people buy USD, USD’s value should go up. Correct me if I’m wrong.
I am really new, at this point I’m trading currency options, just went long on the AUD/USD, only to hear this evening that there was a huge earthquake, and Australia was under a tidal wave alert.
I think that the currencies push the equities, and vice versa.
But then I just saw all the extra money I was going to use for Christmas presents disappearing under a giant wall of water.
You guys are all much smarter than I am.
I’m really curious about this as well.
A.O.
Here’s my 2 cents on this:
Looking at it all in a broader perspective, the stock market as a whole is reported on and great swings have great effect on the sentiment of buyers/sellers.
If the stock markets in a country for example were to crash, what would that say about the state of that country’s economy? HUGE HIT! Thus, sentiment would be that the country is weak and sell off. Thus major changes like that could I beleive have a great effect on the FX markets.
As a sidenote- I don’t think any single stock has the magnitude to dictate that currency or that country’s market view so it would need to be something major to do with stocks in general.
In theory this is correct, but there are a lot of things that go against the theory. A big one is the impact of the USD being the main world reserve currency. That changes dynamics because of what it does to supply and demand of the dollar.
Taking that out, however, keep in mind that everything in forex is relative. You have to look at expecations of stock market performance as it compares to that of other countries. Furthermore, in general terms interest rates have a much bigger impact on forex rates than do stock prices.