Interest and Exchange Rates: A Primer

World markets are connected by interest rates. Then comes The derivative of interest rates and those are exchange rates.

The Federal Reserve begins the 24 hour interest rate cycle every trading afternoon, all nations then follow. The pattern nation to nation is a deep down slope, starts with the Fed then RBNZ and ends with Eur and ECB then CAD and the BOC.

The Fed lowest rate today 1.51. Then comes the RBNZ highest interest rate today at 1.56 then 1.42. The BOJ is next at 0.99.

From the RBNZ lowest rate today at 0.75 comes the RBA lowest rate at 0.60. The ECB lowest rate today 0.72. Then Sonia at BOE sneaks in at 0.70. The BOC and CAD at 1.74 reports during Amerucan market trading.

Here's the list and times reported

Fed 1.51 at 4:15 pm

RBNZ 1.56 and 0.75 at 3:00 PM New Zealand or 9:00 pm New York.

BOJ 0.99

RBA 0.60 to 0.76 at 10:00 PM New York

SNB 0.75

BOE 0.70 at 5:00 am New York

ECB 0.72 to 0.509. at 5:30 am New York

BOC 1.74 at 9:00 am New York

Then begins a new day starting the next 24 hours with the Fed. The Fed is the world dictator to interest rates and by its derivative, dictates DXY.

The RBNZ at 1.56 and above Fed rates is an abnormality as the RBNZ must price its interest rates below Fed Rates in order for ability of all nations continuity to price its interest rates from the RBNZ. As one nation prices its interest rates then the next nation prices from the last reported nation but it all begins with the Fed and RBNZ.

New Zealand serves its purpose among trading nations due because it receives Fed interest rates first. If the RBNZ rates are off kilter, it means all nations are off sync. it means exchange rates will trade off kilter. It means normal daily support/resistance levels lack uniformity. It might mean an overbought currency price may trade higher despite overbought. Many scenarios exist.

NZD/USD for example began the week seriously overbought but it rose and never had the ability to trade lower to relieve its overbought condition.

Any nation can report off kilter interest rates but normally it starts with the all important Fed rates then all nations comply to either an adjustment or all nations remain off kilter for 24 hours.

After interest rates are reported an exchange rate must match.

Here's an example to NZD from days ago.

From daily Fed 1.53, means NZDUSD begins its day at 0.6535. NZD then lives through RBNZ news announcements from 0.6535 until the interest and Exchange rate Fix from the RBNZ at 3:00 pm NZD or 9:00 PM New York. AUD and the RBA then follows 1 hour later at 10 pm.

Every central bank releases its own series of interest rate maturities.

RBNZ runs today from 0.95 to 1.56. AUD runs from 0.96 to 0.60 then the ECB from 0.72 to 0.50. When interest rates are correctly priced, maturities from nation to nation match or better stated, always a few maturities overlap or trade together.

NZD for example 0.91 matches AUD 0.96 and 0.89. NZD 0.75 matches AUD 0.76 and 0.72. The ECB 0.72 matches AUD 0.76 and 0.72. ECB's middle rate at 0.60 matches AUD 0.60.

Imagine a yield curve from nation to nation and matches to yield spreads then one would understand interest rates. Many employ yield spreads for trade decisions but this is not correct since interest rates price yields. Exact entries and targets will be off kilter due to yields secondary signal.

Every trading day interest rates change therefore new interest rates factored to currency prices is a daily routine to know the new daily support/ resistace points and targets. If interest rates go seriously off kilter then trading ranges may change radically.