Interest rate parity vs expected appreciation/depreciation of a ccy

Hi, this question relates to interest rate parity vs expected appreciation/depreciation of a ccy.

Firstly, interest rate parity implies that the country with the higher interest rates will experience a ccy depreciation over time against a country with lower interest rates.

However, at the same time, an interest rate increase causes a ccy to appreciate, as investors will buy the high-rate ccy and sell the low-rate ccy to earn a higher rate of interest. (ie, look what happens when the Australian Reserve Bank raises interest rates, the AUD goes up).

How do you reconcile these two contradictory ideas?

I think you have mistaken between REAL interest rate and NOMINAL interest rate.

The first example is about NOMINAL interest rate, holding a uniform REAL interest rate in everycountry

The second example is about the REAL interest rate in country A, if its higher than country B, investor will be attracted to invest in A.

Does that help?