| dc.description.abstract |
This paper explores the relationship between precisely timed macroeconomic “news”
(or “surprises”) and the immediate currency price fluctuations that surround them.
Using data from 2005-2011, I find significant movements in foreign exchange markets
around a variety of announcements (unemployment, GDP, retail sales, inflation) for
three different countries (United States, Australia, Canada). My results demonstrate
that in the very short-run, as in the long run, the value of a country’s currency
is driven by its macroeconomic fundamentals. Upon further investigation, this paper
also uncovers the following financial phenomena in these foreign exchange responses
to macroeconomic surprises: asymmetric response, nonlinearity, financial stress, liquidity,
and exchange rate specificity. These phenomena refer to the difference in responses
between: positive and negative surprises, big versus small surprises, pre-crisis versus
crisis surprises, ten- versus sixty-minute returns, and two distinct reference currencies,
respectively.
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