Exchange rate vs Interest Rate Drop

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Gohabsgo_IHB

Gohabsgo_IHB

New member
<p>I'm wondering how much the expected interest rate drop will impact the exchange rate. I understand that lower interest rate means a worst exchange rate. In fact it's the difference between interest rate and inflation that really drives the exchange rate. However, shouln't the exchange rate in place today already reflect the anticipated change, therefore if there's a drop of a quarter point, there wouldn't be any impat on the exchange rate? Maybe it still has an impact, because even if the market thinks there will be a drop, that doesn't mean 100% of the market believes there's a drop. As an example, if 20% of participants don't believe in the drop, they will have to revise their expectation once the Fed confirms their position, which will cause a change. However, the change would be much smaller than if 50% of the market didn't predict the Fed decision correctly.</p>

<p>I'm asking all this because I have to transfer $15,000 USD into CAD. Not sure if I should wait or if the market will only get worst here. It is now 1:1 it has been 1.07:1 at some point...but was 0.60:1 something like five years ago. I have top move that money around in the next year. Any suggestions?</p>
 
I wonder if the decline of the dollar serves Bernanke two ways:





1. Higher inflation means you don't need to lower the interest rate as much to get the real interest rate below zero to stimulate the economy.





2. If US banks have to buy back billions of dollars worth of loans from foreign investors, it behooves them to have a less valuable dollar because the payout is in dollars not in the home currency of the investor.
 
<p><strong><a href="http://www.theonion.com/content/node/42363">U.S. Dollar Slips Against Canadian Acorn</a></strong></p>

<p>NEW YORK—The U.S. dollar touched a one-month low against the Canadian acorn Monday, continuing a downward trend ...At the close of trading Monday, the Canadian acorn bought USD $1.1660, up from $1.1593 Friday. </p>

<p>Although the value of the U.S. dollar has fallen steadily against the Lithuanian nail and the Estonian crab apple since early this year, many financial experts had predicted that it would hold its own against the acorn.</p>

<p>"The inedible dollar simply does not offer the same long-term security or short-term benefits as the acorn," said James Aucker of the Commodity Futures Trading Commission. "It is even falling against the Costa Rican pocket, the Latvian thimble, and the German Kinder Surprise Egg, which combines delicious chocolate with a fun, easy-to-assemble toy."</p>

<p><img title="U.S. Dollar Slips Against Canadian Acorn" height="224" alt="U.S. Dollar Slips Against Canadian Acorn" width="250" src="http://www.theonion.com/content/files/images/US-Dollar.article.jpg" /></p>

<p><a href="http://www.theonion.com/content/node/32815"><strong>Dollar Losing Value Against The Quarter</strong></a></p>

<p>NEW YORK—After falling 6 percent in the past three weeks, the U.S. dollar hit a 208-year low against the U.S. quarter, which had been valued at exactly 0.25 dollars since its introduction in 1796. "The dollar continues to slide against most major currencies," Morgan Stanley analyst Richard Jemison said. "At the end of the day Tuesday, the quarter was trading at .267 yen, .203 euros, and US$0.28. But what we're really seeing here is not just a dollar weakened by a sluggish economy, but an exceptionally resilient quarter-dollar." Jemison was quick to point out that the dollar remains very strong against the nickel.</p>
 
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