Drivers of exchange rates

 · USDKRW appears to be relatively impervious to other factors that typically drive exchange rates. For example, pre, the interest rate differential between the South Korean Official Bank Rate and the U.S. Fed funds rates moved roughly in . interest rate differential is a key driver of exchange rates, the RBA’s monetary policy decisions play a key role in influencing the exchange rate. (See Explainer: The Transmission of Monetary Policy and Explainer: Bonds and the Yield Curve for a discussion of how monetary policy affects interest rates and the exchange rate.).  · Exchange rates: key drivers and effects on inflation and trade () This research network analysed the key determinants of exchange rate fluctuations and their impact on prices and trade volumes, with a particular focus on disaggregated data. Countries in the region have recently experienced significant swings in their nominal exchange rates, .

The exchange rate of the currency in which a portfolio holds the bulk of its investments determines that portfolio's real return. A declining exchange rate obviously decreases the purchasing power. USDKRW appears to be relatively impervious to other factors that typically drive exchange rates. For example, pre, the interest rate differential between the South Korean Official Bank Rate and the U.S. Fed funds rates moved roughly in tandem with USDKRW (Figure 3). Hint: interest rates show a clearer trend of rising or falling compared to currency trends. Monetary policy – The expected change in monetary policy is another important driver of medium-term currency moves. If the fundamentals of a country show that a tighter (or looser) monetary policy is more appropriate, the exchange rate will move.

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