There are 8 commonly traded foreign exchange rates that you should know about. However, there are three that you should consider if you are thinking of completing a carry trade. Carry trades make use of the interest rates in different countries in order to make a profit. The three commonly traded currencies that you should know about are the Yen, the Australian and New Zealand dollar.
The Japanese Yen
The Japanese yen is often used as the weaker currency in carry trade pairs. This is due to the low interest rates that this country has. It is important that when you look to trade pairs with this currency that you know more about what drives the Japanese yen.
Japan actually has the second largest economy in the world and is controlled by the Bank of Japan. The central bank in the country controls the monetary policies as well as economic analysis and currency insurance. The monetary policy board meets around 12 times each year to determine the policies that will affect the currency.
The average daily movement of the yen is between 30 and 40 pips. However, there are times when the currency movement can be as great as 150 pips. If you are going to actively trade this currency and not use it as a carry trade currency then you have to look at certain trading times. Te best trading time for this currency is the overlap of the London and New York market session.
The New Zealand Dollar
If you are looking for a second strong currency for you carry trade then you should consider the New Zealand dollar. This currency offers a high interest rate which makes it an ideal candidate. The currency is controlled by the Reserve bank of New Zealand which promotes inflation targeting and the general stability of the currency price.
Like the Australian dollar this currency is also affected by the price of commodities. The two commodities that you have to pay attention to are silver and gold. With gold New Zealand is an importing country which means that a higher gold price has a negative impact.
The average movement of the New Zealand dollar prices are in line with the other major currencies. In a single day the currency will move around 40 pips. Of course, there are days when the movement will be greater.
The Australian Foreign Exchange Rates
The Australian dollar is often used as the strong currency in the carry trading pair. However, you have to be careful when you use this currency because it is a commodity currency. This means that it can fluctuate when the commodity prices fluctuate. The commodity you should pay particular attention to is gold.
The Australian dollar is governed by the Reserve bank of Australia. The long-term plan of this central bank is to uphold the stability of the economy and increase the strength of the currency and the economy. The average price movement for this currency is much the same as the other major currency and is placed at 30 to 40 pips per day.
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