Assignment 2 384

Executive Summary

This report was commissioned to forecast the exchange rate of CAD/USD and AUD/USD in the short term, intermediate term, and the long term. Fundamental analysis is a basic way to predict the movement of one currency.

In terms of CAD/USD, in the short term both economic still in the shadow of the GFC, and the exchange rate will remain in the same level In the intermediate term, the USD will be appreciates more than CAD due to the accelerated recovery from the GFC. In the long term, we assume the CAD and USD will keep the trend of the intermediate term.

In terms of AUD/USD, in the short term, the key economic indicators in Australia are better than those in U.S, which shows that the exchange rate will keeps a little bit favor toward AUD. While in the intermediate term, those figures in Australia will remain stable, and the US would benefit a lot from the recovery of its economy; thus, in next 3 or 5 years it is likely that the USD would stop depreciating against the AUD. In the long term, the exchange rate between USD and AUD would follow a similar trend during the intermediate term.

It is recommended:

In the short term, the top manager should hold a long position on both the USD and the AUD, and a short position on the CAD. In the intermediate term, the top manager should hold a long position on both the USD and the CAD, but hold a short position on AUD. In the long term, the top manager should hold a long position on the USD, but hold a short position on both the CAD and AUD.

Forecast of AUD/USD and EUR/USD

Fundamental analysis is an essential method to forecast the trend of all kinds of currencies. When making fundamental analysis, it is important to notice that not all the economic indicators are created equally; therefore, it is necessary to find out which indicator the markets are keying on, and which indicator has less influence on the markets.

1. Forecast of AUD/USD

The currently inflation rate of Australia is 1.2%[1], and the...