Interest rates are one of those things everyone knows matter… but not everyone fully understands why.
Yet they sit right at the centre of global markets, shaping everything from FX rates to consumer spending to the cost of doing business.
So with both the RBA and the Federal Reserve delivering interest-rate decisions this week, it’s the perfect moment to unpack what’s really going on.
Why interest rates move markets:
When central banks raise or cut interest rates, they’re essentially adjusting the price of money.
Higher rates = more expensive borrowing + better returns for saving
Lower rates = cheaper borrowing + more incentive to spend or invest
This ripples through the entire economy:
◾ Consumers spend more or less depending on credit costs
◾ Businesses expand or slow hiring depending on financing conditions
◾ Currencies strengthen or weaken as traders chase yield
Which leads to one of the biggest impacts for our world at August Exchange…
Interest rates & FX forward rates:
Forward contracts aren’t just based on where the spot rate sits today. They’re driven by interest-rate differentials between two currencies.
If one central bank raises rates while another cuts, the forward rate moves accordingly.
This means your future currency costs, for property purchases, invoices, investments, or sending money home, can shift even if the spot rate barely moves.
For anyone budgeting ahead, rate decisions matter a lot.
What to expect from the RBA & the Fed this week:
Neither is expected to shock the market with a dramatic move. That often means traders pay even closer attention to the language, not the number.
Is the tone hawkish (hinting at future hikes)?
Or dovish (leaning toward cuts)?
A single sentence in the monetary policy statement can shift global currencies more than the interest-rate decision itself.
Both central banks are still wrestling with the same challenges:
◽ inflation that’s easing but not gone
◽ labour markets that are cooling but still tight
◽ economies that are growing, but unevenly
So expect careful messaging, subtle clues, and plenty of scrutiny from FX traders looking for an edge.
Interest rates may seem like a technical topic, but they shape everything, from how much we spend to how businesses plan, to what your next international payment will cost.
If you want to better understand how rate decisions affect your FX exposure, your forward pricing, or your upcoming transfers, feel free to reach out. Always happy to talk through the strategy behind it.
