What is Exchange Rate Seasonality?

Take the month of July as an example. During July, the end of the 1st financial quarter in Japan coincides with the beginning of the second half of the year in the U.S. If USD/JPY is typically up during this period, some investors may interpret it as an instance of exchange rate seasonality.

Does Currency Seasonality Affect Exchange Rates?

While seasonality may have played a larger role in previous decades like the 1970’s and 80’s, subsequent recent adjustments in the behaviors of active traders and investors have mitigated the influence of seasonality in recent times.¹ New technologies, theories, and economic practices have all begun to reduce the influence of exchange rate seasonality due to a more integrated financial system.

Do You Need To Factor In Exchange Rate Seasonality When Making a Transfer?

As stated above, recent research suggests the effect of seasonality is decreasing. And while it’s one thing to find a correlation that demonstrates USD/JPY is typically up over the end of the month of July compared to the beginning of the month, even if that trend ends up occurring often enough to make it statistically significant, it does not project accurate valuations of how much the currency is likely to appreciate over that time period. Therefore, the USD could be up .01% or it could be up 3%, and it could, of course, also be down on the one particular year that you need to send money overseas.

A more reliable way to protect your money transfer from adverse currency movements is to use products like Limit Orders or Forward Contracts to ensure you get the exchange rate you want, when you need it.

Sources:

1. https://mpra.ub.uni-muenchen.de/30888/