Frequency domain analysis of foreign exchange order flows

Using a unique data set from the Bank of Canada, this paper presents the frequency domain analysis of a causal relationship between the Canada/US dollar exchange rate movements and currency order flows. The evidence shows that the existence as well as the direction of causality depends on the customer type, frequency, and time period.

► Investigate the FX market microstructure causality assumption. ► Frequency domain analysis for the Canada/US dollar exchange rate. ► Instability in the causal relationship between order flow and FX returns. ► Depends on the customer type, frequency, and time period.