International Finance: Currency Market Overview and Forecast

Running head: INTERNATIONAL FINANCE 1
International Finance
Name:
Institution

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International Finance
Executive Summary
The report has provided a detailed overview of the current currency market coupled with
associated projections and market performances. In particular, the report has affirmed that
different currency markets reacted differently to market dynamics from 2nd January 2018 to
August 31st, 2018. For example, the strength of the Australian dollar has faced some minor
challenges as a result of the protracted trade wars between China and the US. The report has
further described International currency market movements coupled with major events and
announcements that have affected the operations in the markets. For instance, the report has
established that the increased trade wars between China and the US have had some impacts on
the currency markets in various parts of the world. Additionally, the report has established
possible reasons for the exchange rate movements by comparing the US dollar, Euro and British
pound with the AUD. Some of these reasons include the recent political turmoil in Spain and
Italy and the politics surround Brexit. Lastly, the report has identified various trading strategies
such as scalping and daily pivots to be comparatively effective in the currency trading markets.
Currency Market Overview and Forecast
International currency market movement
, deriving an accurate prediction of the currency market movements and activities can be
extremely difficult given the numerous fluctuations and varied externalities (Salisu, Oyewole, &
Fasanya, 2018). Notably, there has been a drastic change in the currency market movements and
activities from January 2nd, 2018 to August 31st, 2018. For instance, the Euro has recorded drastic
improvements breaking above the Hawkish Draghi with a break of approximately 1.18. Such

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positive development from the Euro has seen the currency grow above its major competitors
providing the region with a strong growth potential. Also, after experiencing a serious decline in
2016 and 2017, the GBP has recorded a modest reprieve from January 2nd, 2018 to August 31st,
2018 becoming one of the best performers among the G10 nations.
Moreover, the Australian Dollar which is mostly viewed as a proxy for China has faced a
serious decline. Most financial analysts attribute such decline to the billions of tariffs that are
currently being implemented by the Trump administration. Specifically, the trade war between
China and the U.S has seriously weighted on the Aussie further affecting the country’s economic
prospects. Another significant international currency market movement was recorded from the
Brent crude oil futures which hit a fresh 4-year high. The rise can be accredited to OPEC’s
decision to raise oil production only if the demand for this precious commodity was high among
the consumers effectively snubbing president Trump’s demands to have the oil prices lowered.
In other parts of the world, the Norges Banks (Norway) has also seen a hike in interest
rate early this year resulting into significant gain against the US Dollar. Also, the New Zealand
currency (Kiwi) has experienced a negative growth against the US Dollar depreciating by
approximately 12.25% over the stipulated period. The Swiss National Bank has recorded a
strong growth in the economy with a 1% rise against the US Dollar and about 3.5% against the
Euro. In addition, over the stipulated period, gold prices have managed to record an upswing, a
fact attributed to the supportive impact of the US Dollar which has been weaker and this has
resulted in a rise in yields (Du et al, 2017).
The most current announcement in the currency markets is the $200 billion tariffs
imposed by the Trump administration on Chinese goods. Undoubtedly, the high trade tensions
between the US and China has resulted in a drastic drop in investors’ confidence and numerous

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speculative purchases and trade deals. Going forward, preemptive rebalancing of the portfolio
remains to be one of the most important catalysts for changes in prices in the currency markets.
In general, the Euro has remained strong over the period at $1.17, the US dollar has also been
holding above JPY112.00 while the Sterling Pound has set a 5-month best at $1.3215. On the
other hand, the Canadian dollar has greatly benefited from the improving prospects of the U.S
dollar while despite poor performances; the Australian dollar is on the right course of re-
establishment.
Major events/announcements
According to Guofeng (2015), the currency market is a globally interconnected platform
that can be affected by various factors such as exchange rates and currency values. Indeed, there
are numerous major events or announcement that may have caused noticeable movements in
currency markets that are clearly stipulated above. For instance, the Italian and Spanish political
turmoil has had significant impacts on the global currency markets. According to Peltomäki,
Graham & Hasselgren (2018), exchange rates are more likely to react in favor of those political
parties with effective and reasonable fiscal and monetary policies that may prevent a possible
downgrade of a country’s credit ratings.
Following widespread political instability in these two countries, consumer confidence
reduced coupled with poor performances against the Euro and US Dollar among other major
global currencies (Barai, Fullerton & Walke, 2018). Moreover, the announcement by the British
Prime Minister earlier this year to conduct an early election in the UK has greatly affected the
performances of the Australian Dollar.
The exchange rate of AUD with 4 other currencies