The Positive Relationship Between Short Term Rates and the Dollar Index
Sat, Mar 13, 8:41 PM ET, by Corey Rosenbloom
I wanted to highlight a few quick recent charts of how the US Dollar Index positively correlates (moves in the same direction) with the 3-month Treasury Bill Discount Rate. It’s not the most fascinating topic, but it’s definitely important to know of this relationship, so let’s take a look at a couple of recent charts. First, a ‘zoomed in’ view of the recent action: 
You can view this comparison in StockCharts with symbols: $IRX for the 3-month T-Bill Discount Rate (short-term) $USD (US Dollar Index - a basket of 6 FOREX pairs) What’s interesting is that - relatively - the indexes move almost in lock-step with each other, which makes sense. While this isn’t the “Fed Funds Rate,” in general higher rates translate into a more attractive (expensive) currency, and lower rates translate into a weaker currency for a country. We’re seeing this in the recent charts of short-term Treasury Yields and the Dollar Index as expected. This is in line with talk of the Fed “eventually” (at some point in the future) raising the Fed Funds Rate… but that is an entirely separate discussion. Let’s step the chart back to see the one-year comparison in yields and the Dollar Index: 
In both charts, the US Dollar Index - green - is scaled on the left side of the chart while the 3-month T-Bill Discount Rate is scaled - in percentage terms - on the right side. Thus the current 1.4 value corresponds with 1.4%. Remember that short-term rates went temporarily negative in November 2009 in a ‘panic’ mode where investors were willing to pay money (negative interest rate) for guaranteed safety of their cash. This is where rates - and shortly after the Dollar Index - bottomed prior to the current simultaneous rallies we’re seeing. I wanted to call this to your attention as an interesting comparison and method to sharpen your inter-market analysis skills. Corey Rosenbloom, CMT
Afraid to Trade.com Follow Corey on Twitter: http://twitter.com/afraidtotrade
 blog.afraidtotrade.com
SDI Glossary: "the Fed" Definition
SDI Glossary: "Stock" Definition
SDI Glossary: "symbol" Definition
SDI Glossary: "TA" Definition
SDI Glossary: "Yield" DefinitionThis Article's Word Cloud:
Bill
Corey
Discount
Dollar
Funds
Index
Rate
This
Trade
Treasury
What
afraidtotrade
attention
chart
charts
comparison
currency
current
entirely
fascinating
inter
interesting
into
lock
month
negative
positively
prior
quick
rates
recent
relatively
right
scaled
seeing
short
side
skills
step
temporarily
term
that
this
translate
view
wanted
went
where
with
your
More articles: 1 2 3 4 5 6 7 next »
| 
RSS