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Analysis of the Dynamic Correlation between Currency, Futures, and Economic Indicators in China and Australia Based on VAR Model

Author(s)

Hengyu Lin1, Gang Li2

Affiliation(s)

1The University of Edinburgh, Edinburgh, United Kingdom 2North China University of Technology, Beijing, China

Abstract

Under the background of global economic integration, exchange rate, as a bridge connecting domestic and foreign markets, has a profound impact on national economy. As the world's second-largest economy and a significant consumer of commodities like iron ore, China's exchange rate fluctuations not only impact the domestic price level but also exert influences on international trade, industrial production, and financial markets via the transmission mechanism. Particularly, iron ore, being an essential raw material for steel production, its price variations are directly associated with the costs and profits of downstream industries and subsequently affect the overall economic operation. The intricate interplay among exchange rates, commodity costs, and inflation holds significant implications for the formulation of monetary stance. This paper employs a Vector Autoregression (VAR) model to analyze the relationships among the AUD/CNY exchange rate, Chinese iron ore futures, China's Consumer Price Index (CPI), and the yield on China's 10-year government bonds. By examining the interactions between these variables, the paper aims to reveal the impact of exchange rate fluctuations on Chinese iron ore futures prices and other key economic indicators, thereby providing insights into broader economic effects.

Keywords

Iron Ore Futures; Exchange Rate; Interest Rate; Macroeconomics Performance Indicator; Inflation; CPI

References

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