In fundamental analysis, traders generally predicate trading decisions on economic indicators and interest rates. It seems the attention of fundamental analysts has shifted away from current account balances and towards general economic performance. Some analysts had previously posited a relationship between changes in a particular nation’s current account balance and the performance of its currency. Now, these analysts believe general economic strength will guide performance.

The basis for their reasoning is indirectly tied to monetary policy, as interest rate levels are generally correlated with economic performance. For example, as the American economy continues to grow, policy makers will likely raise interest rates. The economies of Britain, Australia, and New Zealand, in contrast, have entered periods of relative stagnancy, and will likely witness the tightening of monetary policy. The result will be narrowing interest rate differentials, which some analysts expect will underscore strength in the USD.

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