Summary

Introduction

Forecasting is a technique that uses historical data as inputs to make informed estimates that are predictive in determining the direction of future trends. Businesses utilize forecasting to determine how to allocate their budgets or plan for anticipated expenses for an upcoming period of time. This is typically based on the projected demand for the goods and services offered. In this project, I take a different direction and try to forecast time series of foreign rate exchange (Forex) data.

What is Forex?

Forex is a portmanteau of foreign currency and exchange. Foreign exchange is the process of changing one currency into another for a variety of reasons, usually for commerce, trading, or tourism. According to a 2019 triennial report from the Bank for International Settlements (a global bank for national central banks), the daily trading volume for forex reached $6.6 trillion in April 2019 ref.

Exploratory Data Analysis

The dataset Foreign_Exchange_Rates.csv used for this analysis can be found here. After initial data wrangling, provided below is a snapshot of the first 5 rows of this dataset:


index Time Series AUD_USD EUR_USD NZD_USD GBP_USD BRL_USD CND_USD CNY_USD HKD_USD IDR_USD KRW_USD MXN_USD ZAR_USD SGD_USD DKK_USD JPY_USD MYR_USD NOK_USD SEK_USD LKR_USD
0 2000-01-03 00:00:00 1.5172 0.9847 1.9033 0.6146 1.805 1.4465 8.2798 7.7765 43.55 1128.0 9.4015 6.126 1.6563 7.329 101.7 3.8 7.964 8.443 72.3
1 2000-01-04 00:00:00 1.5239 0.97 1.9238 0.6109 1.8405 1.4518 8.2799 7.7775 43.55 1122.5 9.457 6.085 1.6535 7.218 103.09 3.8 7.934 8.36 72.65
2 2000-01-05 00:00:00 1.5267 0.9676 1.9339 0.6092 1.856 1.4518 8.2798 7.778 43.55 1135.0 9.535 6.07 1.656 7.208 103.77 3.8 7.935 8.353 72.95
3 2000-01-06 00:00:00 1.5291 0.9686 1.9436 0.607 1.84 1.4571 8.2797 7.7785 43.55 1146.5 9.567 6.08 1.6655 7.2125 105.19 3.8 7.94 8.3675 72.95
4 2000-01-07 00:00:00 1.5272 0.9714 1.938 0.6104 1.831 1.4505 8.2794 7.7783 43.55 1138.0 9.52 6.057 1.6625 7.2285 105.17 3.8 7.966 8.415 73.15


We can plot the time series of all forex rate values (log scale used on y axis):