Forex Question….why US economic news affects other currencies?
I have noticed that when there are nagetive economic news for USA, it also affects other currencies. For example, yesterday the economic news about the building permits in USA was bit nagetive than expected. Because of this data, the NZD also suffered and went lower. Why this happens? Whats the fundamentals behind this?
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With the globalized world, and interconnectivity of the markets and economies, one group of forex traders may watch the slump in the real estate market for clues of mortgage futures.
Changes in the realty sector has caused the need for interest rate changes in the US, which greatly affect the USD, which immediately causes a ripple affect in all other currencies. Just a perception that such a change may happen soon, or change policy, could cause the same effect.
The trading in currencies in the forex market is not done in just a single currency. The trading is done in currency pairs. If you wish to sell New Zealand Dollars, then you short the NZD/USD pair. The currencies are all relative to the economies of each other. If you think New Zealand is strengthening more than the US and you wish to buy New Zealand dollars on the forex market, then you have to short some other currency.
The US is the biggest economy in the world, and the biggest number of consumers in the world. If the US economy suffers, then the world is likely to suffer economically. If the outlook is not so bright here, then the outlook is not so bright elsewhere.
The housing bubble in the US was what started the current debt crisis that led us into a world recession, and it could very well be one of the first few signs that things are getting better. So when it is negative, it shows we are still in duck soup, and the media quacks for a better economy.