Curreny Forecast

EFB312 – International Finance
Currency Forecasting Project
Dora Chou n9248871
Queensland University of Technology
In the ever-changing financial markets, people should diversify their investments to earn the maximum profit. Distributing different portion of money into selected currencies is one of the approaches to make money. For the past many years, scholars have developed a number of methods to predict exchange rates. As a speculator, I am going to use three measures including Asset Market Approach,
Relative PPP, and International Fisher Effect for currency forecasting. From the fundamental perspective, Asset Market Approach considers economic growth, unemployment rate, political risk, etc. I would like to use Relative PPP instead of
Absolute PPP as Absolute PPP assumes two countries have similar or identical goods from the basket. Absolute PPP is pretty straightforward and easy to compute; however, it’s difficult that all goods are trade between all countries, and the labour cost may be various in each country. (Alan M. Taylor and Mark P. Taylor, 2004). International
Fisher Effect is closely related to Relative PPP which adopts nominal interest rates rather than inflation rate, and it’s now widely used for predicting exchange rate.
Asset Market Approach

Real GDP Growth
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
-1.00%
-2.00%
-3.00%
-4.00%
-5.00%
-6.00%

2009

2010

2011

2012

2013

2014

2015

USD

-2.60%

3.00%

1.80%

2.80%

1.90%

2.80%

3.00%

EUR

-4.10%

1.80%

1.40%

-0.60%

-0.50%

1.20%

1.50%

GBP

-4.90%

1.40%

0.80%

0.20%

1.80%

2.90%

2.50%

AUD

1.20%

2.70%

2.10%

3.70%

2.40%

2.60%

2.70%

Source: IMF World Economic Outlook

1

Unemployment Rate
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%

2009

2010

2011

2012

2013

2014

2015

USD

9.30%

9.60%

9.00%

8.10%

7.40%

6.40%

6.20%