Forecasting exchange rates are beneficial to identify the changes in the market trend. Every trader has a desire to acquire greater benefits and make supplement incomes. With the inability to judge the market flow, many traders incur significant losses.
This tells how difficult is to generate supplement income. But some techniques have offered great benefits to traders. Anyone can take advantage of these methods to understand currency pairs like AUD to USD or USD to CAD exchange rate forecast.
Check some of the popular methods for exchange rates:
- PPP (Purchasing Power Parity):
This method has been described in most of the economic textbooks. The users should approach to use PPP method of finding exchange rates. This method is based on ‘Law of One Price’. This means any goods can be identified with the same price in different countries. However, the shipping charges and transaction cost will be added later. In this way, PPP method offers benefit to traders to judge the market trend.
For example, USD is supposed to increase by 5% whereas CAD is expected to increase by only 3%. This sets the difference in between these two countries as 2%.
According to PPP method, the forecast on the exchange rate of these two countries will be:
(1 + 0.02) * (USD 0.92 per CAD 1) = USD 0.9384 per CAD 1
Where, USD 0.92 per CAD 1 means current exchange rate of USD is taken as 92% per one CAD.
- Time Series Model:
The time series model determines the exchange rate technically. In this context, ARMA (Autoregressive Moving Average) process is determined as the best possible way. It is fully based on indicator pattern that is used to predict future market movements.
It is an inbuilt formulated method. The users have to put data that is required for Canadian forex forecast. Within a jiffy, they can see the results on the computer screen.
- Relative Economic Strength:
This method stress itself to look for economic growth of different countries. The forecast method shows the direction of exchange rates as per the strength of economic growth.
This method is likely to judge the flow of investment along with economic growth. In fact, relative economic strength is an approach to identify the high-interest rather than getting the value of expected exchange rate.
Relative Economic Strength is quite beneficial for USD to CAD exchange rate forecast with another forecasting method. This is because it will then develop a more accurate forecast of currency pairs.
What to avoid?
Users should take forecasting as a technique which offers greater benefits. Suppose traders have taken daily USD to CAD exchange rate forecast for future trades and place a trade by looking at an Ad, this might incur losses.
Believing at Ads might bring adverse effects. This is why traders should use reliable software for forecasting exchange rates. This improves the potential of making a profit with greater returns.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.