Multifractal Cross-correlations between foreign exchange rates and interest rate spreads

We apply the Multifractal detrended moving average analysis (MF-DMA) and the Multifractal Cross-Correlation Analysis(MFCCA) to study the cross-correlation behaviors between foreign exchange markets and interest rate differentials. Our empirical results obtained from the cross-correlation test, qDCCA coefficient and MFCCA confirm the existence of strong multifractality cross-correlations between foreign exchange rates and interest rate differentials. Foreign exchange rate has a stronger cross-correlation with short-term interest rate differentials in Australia, Canada, Japan, the United Kingdom (UK), and European Union (EU), and with long-term interest rate differentials in China, respectively. The results of rolling window analysis suggest varying cross-correlations between the exchange rates and interest rate differentials during the sample period. In addition, the cross-correlations between exchange rates and interest spreads vary with period, country and maturity of the spreads. (c) 2021 Elsevier B.V. All rights reserved.