Select one of the major currency pairs and analyses the impact of an announcement on the spot exchange rate, or a group of announcements over a period of time that impact on the spot rate.
In this question, need to consider which factor can influence the spot rate; usually the following factors can influence the spot rate:
1. The interest rates: interest rates is one of the most significant elements to influence the spot rate, because of it is reflect the supply and demand of currency in the market. In general raising the interest rate should increase the spot rate.
2. The inflation rate: the inflation rate, exchange rate and interest rate these three rate are highly correlated, a country with a low inflation rate it means that low inflation country has high purchasing ...view middle of the document...
The political situations generally include political conflict, military conflict, elections etc. These situations will influence the exchange rate.
According to above analysis, we know the announcement can influence the spot rate, I select AUD/USD spot rate to explain the impact of announcement form 1st of May to 19th of May.
The following graph displays the AUD/USD spot rate change form 1st of May to 17th of May. The overall trend is down trend; the AUD/USD spot rate is 1.0349 at 1st of May, and the rate is 0.9728 at 17th of May. What reasons cause the AUD/USD spot rate decrease?
* Reserve Bank of Australia cuts the rate: as above analysis interest rate is a significant factor for spot rate. At 7th of May, the RBA cut its interest by 25 basis points, which is 2.75%. Because of this announcement, it is make the AUD/USD spot rate fall. (http://www.cnbc.com/id/100713302)
* Australia labor force: at 9th of may the Australia government release the statistics of labor force. Although the unemployment rate remained at 5.5%, but the number of unemployment from 676,600 people increase to 682.900. Compare with the historical data, the 5.5% unemployment rate is higher than before, which represent Australia economic growth still not recovery. It can decrease the value of AUD; therefore the spot of AUD/USD spot rate falling down.
* NAB business confidence: National Australia Bank releases their monthly business survey. Base on the survey, the result of the survey is not optimistic. Almost people no confidence about economic growth in short time. This is a reason for AUD depreciation as well.