Up until recently Australia lagged well behind many of its peers, only providing inflation
Inflation
Inflation is define
Up until recently Australia lagged well behind many of its peers, only providing inflation
Inflation
Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market. Read this Term data (from official sources) once a quarter. There is now a monthly reading from the Australian Bureau of Statistics. Today we get the October reading:
In brief previews. National Australia Bank:
Fuel prices, airfares, and rents suggest we should expect a high print and we pencil in a lift to 7.7% YoY (1.0% MoM) from 7.3% YoY in September based on the limited data that we have for the month.
Westpac:
Considering the partial indicators we have, and making reference to the timing of the surveys for the various components of the CPI, we are forecasting the Monthly Indicator to lift 0.6% in October holding the annual rate flat at 7.3%.
We are nearing the peak in the annual pace of inflation but given the timing of the various surveys, we don’t expect to see it until December. From there we expect to moderate as we move through 2023 with the usual monthly volatility
Volatility
In terms of trading, volatility refers to the amount of change in the rate of an index or asset, such as forex, commodities, stocks, over a given time period. Trading volatility can be a means of describing an instrument’s fluctuation. For example, a highly volatile stock equates to large fluctuations in price, whereas a low volatile stock equates to tepid fluctuations in price. Overall, volatility is an important statistical indicator used by many parties, including financial traders, analysts, and brokers. Volatility can be an important determinant in developing trading systems, protocols, or regulations.In the retail space, traders can be successful in both low and high volatile environments, however the strategies employed are often different depending upon volatility. Is Volatility Good or Bad? In the forex space, lower levels of volatile across currency pairs offer less surprises, movements, and are suited to certain types of individuals such as position traders.By extension, high volatile pairs are attractive for many day traders. This is due to rapid and strong movements, which collectively offer the potential for higher profits.However, the risk associated with such volatile pairs are manifold. Of note, volatility with instruments or indices can and do change over time. There can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. For example, certain months in the summer are associated with low trading volatility.Too little volatility is just as problematic for markets as too much. Too much volatility can instill panic and create its own issues, such as liquidity constraints.A famous example of this are considered Black Swan events, which have historically roiled currency and equity markets.
In terms of trading, volatility refers to the amount of change in the rate of an index or asset, such as forex, commodities, stocks, over a given time period. Trading volatility can be a means of describing an instrument’s fluctuation. For example, a highly volatile stock equates to large fluctuations in price, whereas a low volatile stock equates to tepid fluctuations in price. Overall, volatility is an important statistical indicator used by many parties, including financial traders, analysts, and brokers. Volatility can be an important determinant in developing trading systems, protocols, or regulations.In the retail space, traders can be successful in both low and high volatile environments, however the strategies employed are often different depending upon volatility. Is Volatility Good or Bad? In the forex space, lower levels of volatile across currency pairs offer less surprises, movements, and are suited to certain types of individuals such as position traders.By extension, high volatile pairs are attractive for many day traders. This is due to rapid and strong movements, which collectively offer the potential for higher profits.However, the risk associated with such volatile pairs are manifold. Of note, volatility with instruments or indices can and do change over time. There can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. For example, certain months in the summer are associated with low trading volatility.Too little volatility is just as problematic for markets as too much. Too much volatility can instill panic and create its own issues, such as liquidity constraints.A famous example of this are considered Black Swan events, which have historically roiled currency and equity markets. Read this Term.
