What causes the value of a currency to decline and rise? Every day, we see news about the Malaysian Ringgit (RM) falling or rising against the US dollar (USD).
The same goes for other currencies. Sometimes the USD trades higher against the Japanese yen and maybe tomorrow the yen will be higher.
But what exactly are the factors driving the change in the trading value of this currency?
In detail due to demand and supply. The more demand, the higher the value of the currency. Demand and supply are influenced by the economic situation of the country.
For example, import and export activities. If a country does more exports than imports, the value of that country's currency will increase and vice versa.
Foreign direct investment (FDI) is also the biggest factor in currency movements. Investments such as real estate, stocks and bonds will affect the performance of the currency.
Investment requires foreign companies to exchange local currency before they can invest in a country.
Investment will be influenced by the economic situation of the country. Foreign companies will look from various aspects. Aspects such as the positive political situation, low taxes, laws and facilities provided by the country are the consideration of every investor.
As more and more people invest in a country, the value of that country's currency increases.
If the country has severe sentiment or disaster, most investors will feel scared and act to sell their shares. When many investors come out, supply will occur then the value of the country's currency will fall.
Economic data such as bank interest rates, national unemployment rate, inflation and economic growth rates are important data for investors to assess the fluctuations of a currency.
