Leading Economic Indicators of Foreign Exchange Rates

Read the transcript – Leading Economic Indicators

The global nature of financial markets means political and economic events play a major role in influencing exchange rates.

The key areas of information to watch can be broadly categorised as capital markets, international trade, political events and economic news.

Performances in capital markets are important to track as they may influence the direction of a country's currency. It's often the case that equity and bond markets figure out what's happening before wider economic fortunes and currencies follow.

Next, you need to look at international trade balances.

A trade deficit means a country is a net importer of international goods and services, so more of the local currency will be sold to pay for goods and this generally leads the currency lower. And, all else equal, a trade surplus will push the currency higher.

Government policy is another big influencer of a country's economy, and therefore foreign exchange markets.

Elections, policy changes and the balance of power are all important to gauge currency direction.

Also wrapped up in politics are central banks. Any moves that may impact interest rates or exchange rates are to be watched closely.

Economic releases are the other key mover of exchange rates.

Gross Domestic Product is important, as are inflation and unemployment data, manufacturing indexes, retail sales, building approvals and lending levels. Preferably you're looking for leading indicators, but it all adds to the big picture so best stay across all key releases.

As to the important dates to watch out for, financial reporting seasons and large government debt issues are worth noting down, as are key data releases by the national statistics agency, government election terms and the central bank meetings.

By staying on top of market moving information, you can make rough forecasts and plan a proactive foreign exchange strategy that ensures you're not caught out trading at especially volatile times.

That said, an informed foreign exchange provider with a dedicated account manager will cover all these events and strategic implications for you.