Forecasting Intraday USD/CAD Exchange Rate with News-Derived Monetary-Policy Signals

Abstract:Monetary-policy announcements and central-bank communications play a central role in foreign exchange markets, yet their qualitative, unstructured form makes their forecasting value difficult to quantify. While prior research has largely focused on sentiment extracted from financial news, comparatively little is known about the relative contribution of different dimensions of monetary-policy communication. Existing studies primarily evaluate whether textual information improves overall forecasting performance but provide limited insight into which communication channels drive such improvements. To address this gap, this paper introduces a statistical attribution methodology that decomposes monetary-policy communication into interpretable channels and quantifies their incremental forecasting contribution under false-discovery-rate control. Monetary-policy news is transformed into structured communication signals using large language models (LLMs) and temporal feature engineering. These signals are evaluated using rolling-window experiments with tree-based machine-learning models. The results show that monetary-policy communication contains measurable predictive information. Attribution analysis shows that predictive value is concentrated in a small subset of signals, with communication timing providing the strongest individual feature-level contribution, targeted communication-activity measures also contributing positively, and LLM-derived sentiment providing complementary information at the group level. The findings indicate that communication-based forecasting value extends beyond sentiment alone and that attribution, rather than aggregate accuracy alone, is central to evaluating news-derived signals.

Artificial Intelligence (cs.AI); Machine Learning (cs.LG); Computational Finance (q-fin.CP)

arXiv:2609.32773 [cs.AI]

(or arXiv:2609.32773v1 [cs.AI] for this version)

https://doi.org/10.48550/arXiv.2609.32773 Focus to learn more arXiv-issued DOI via DataCite (pending registration)

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