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Economic Growth Positive economic growth is strongly tied to a rise in currency value. Why? When an economy is in a growth period, inflation tends to follow. What do the central banks do when the threat of inflation is looming ahead? Typically, they raise interest rates in order

to slow down the economic boom just a bit. Now, when interest rates go up, investors – especially foreign investors – start putting more money into the economy. More investors mean more demand for the currency. So, the value of the currency goes up. Likewise, a slow in growth or even a significant downturn will cause the reverse of this chain reaction to take place. Central banks tend to cut interest rates to give sluggish economies a shot in the arm. However, lower interest rates mean lower returns for investors. They respond by pulling out of the market. This results in less demand for the currency, followed by a drop in currency value. Mergers and Acquisitions Mergers and acquisitions are relevant indicators, though perhaps not as strong as the others discussed here. However, mergers and acquisitions between large, multinational companies can and do have an impact on currency values for the short-term. The reason should be fairly clear when you think about it. In order to complete an acquisition, for example, the corporation that is attempting to purchase a corporation based in another country must enter the Forex market to purchase the corresponding currency. During the window of time that the acquisition is pending, it is not unusual to see a spike in currency value on both sides. Trade and Capital Flow Countries may be said to be dependent on either trade flow or capital flow. A country dependent on trade flow brings in the larger part of its income from by its trade or exports with other countries. Some examples of trade flow dependent economies include:

                        Canada – oil exports

                        Australia – precious metals exports

                        New Zealand – agricultural exports

                        Japan – electronics and automotive exports

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