Dollar

Prediction: Euro Worsening to Reach Near Dollar Parity

Just after a sweltering Fourth of July weekend, new predictions are calling for a stronger-looking US dollar over the next year… at least in terms of the euro. A number of currency forecasters, recognized by Bloomberg as some of the world’s most accurate, are predicting the euro will continue to weaken and as is destined to hit near dollar parity in 2011.

From Bloomberg:

“Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto, said the euro will depreciate to .13 in the third quarter, .08 by year-end and may near in 2011 before recovering. Osborne, whose predictions were within 4.1 percent of the mark on average, according to data compiled by Bloomberg, was echoed by the nine following most-accurate forecasters in anticipating a lower euro in the next two quarters.

“The euro weakened 15 percent against the dollar in the first half on speculation record budget deficits from Ireland to Portugal and Greece will force governments to cut spending and reduce economic growth. Bond yields among the euro-area’s so-called peripheral nations surged relative to German bunds even as European Union leaders crafted an almost trillion aid package to avoid sovereign defaults.

“‘It’s going to be an immensely challenging environment for these economies to try and regain competitiveness internally within the euro zone,’ said Osborne, 47, who has been head of currency strategy at TD Securities since he joined in 2006 from Scotia Capital. ‘The ECB is moving towards its version of quantitative easing. It suggests they’re going to be very late now to the tightening cycle.’”

As recently as 2008 the euro was over .50, but this past June it hit a four-year low of about .18 and its outlook remains gloomy. In describing the possible future of the euro zone, Bloomberg cites former Fed Chairman Paul Volcker, who indicated that “the [euro] decline threatens to break up the region.” It’s an oft-repeated refrain and not exactly a message that bolsters confidence in the continent’s currency. At this point the US dollar is really just the lesser of two evils, but it’s encouraging to see a prediction of some relative dollar strength timed right around the nation’s birthday.

You can read more details in Bloomberg’s coverage of how the euro’s worst is still yet to come.

Best,

Rocky Vega,
The Daily Reckoning

Prediction: Euro Worsening to Reach Near Dollar Parity originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

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Dollar Gets Sold On Bad Data Prints

Jul 6th, 2010

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The currencies traded yesterday, but in very tight ranges, as the US was on holiday. This morning, the bias is to sell dollars, much like it was on Friday before the liquidity of Europe went to the pubs… Let’s go back now, and revisit Friday’s action…

Well… There was more proof on Friday that the double dip is coming…

The Jobs Jamboree was pitiful… As the “real” numbers (non-census workers) added just 83,000 jobs in June… (With the census workers, 125,000 jobs were lost!) That’s just not the kind of job creation an economy like the US needs to push it along…

But the real proof in the pudding came from Factory Orders, which fell 1.4% in May… And… Factory earnings were down for the month and up only 1.7% annualized. Add this to the long and getting longer list of economic data that’s nowhere near “recovery status”!

We sure didn’t see the politicians on the cable news stations pounding their chests and claiming that job creation was proof their stimulus was working, now did we?

And here’s something from Friday’s letter… A reader was quite upset with me because after talking about the bad economy I said, “we’ve got that going for us”… Well, I explained that I was not rooting against the US that it was simply a facetious comment… Long-time readers know…

So… In a blast from the past, the currencies rallied and the dollar was sold on the bad data… WOW! It was just like olden, golden times! Now, that was the way currencies should react to bad economic news in a country. Why? Because, if a country is printing bad economic news, the next step for that country is to lower interest rates, which is debasing their currency.

In recent times, it’s been the opposite for bad data prints… So hopefully this is a step in the right direction… And I’m not just talking about the bad economics in the US… If, say Australia, prints a bad labor number, the Aussie dollar should be sold, that… Would put us back under the fundamentals flag… Yes, I would love to run that flag up the pole and leave it there for a long time!

The euro (EUR) traded all the way to 1.26 on Friday morning after the US Jobs Jamboree, but once the liquidity of Europe went to the pubs, and beer halls, the dollar staged a mini comeback. Yesterday, I checked in the light trading, and noticed that the dollar had continued to gain… But that all changed overnight, and the dollar is back on the selling block this morning.

I saw a report yesterday that the euro could very well go back to 1.30 on technical moves… I then saw a report saying that the euro was going to go back to parity.

That’s quite a wide swing from 1.30 to 1, eh? So… I guess it all depends on your outlook on which way it goes… Will you pin your colors to the 1.30 mast? Or, the 1 mast?

I’m on the fence… Personally, I think that the euro is fine where it’s at for now… And if the 1-trillion euro aid package works, then the euro can move higher… If it doesn’t, then it should move lower… But, even if the euro moves higher, it’s not out of the woods by any stretch of the imagination, folks…

The Canadian dollar/loonie (CAD), which had been dancing in the same conga line as the Swiss franc (CHF) lately, has run into a roadblock, and here is a good example of what I was talking about above… The loonie had been on rally tracks because of the good economic data, and a rate hike from the first G-7 nation. But in the past week, Canada has seen some softer economic reports, and an oil price that has plummeted, and those things have dampened the thoughts on future rate hikes… So, the loonie sees weakness… That’s what fundamentals are all about!

The Reserve Bank of Australia (RBA) issued their most recent policy statement last night, after leaving their interest rates unchanged…. The policy statement, though, had a different tone to it than one would expect, given the unchanged rates… The RBA acknowledged in their statement that consumer spending and business investment are expanding…

In other news, Australia printed a very strong Trade Balance in May, with a large upward revision to April’s number… Here are the numbers… May Trade Surplus of A$ 1.645 billion, and April revised from A$ 134 million to A$ 1.123 billion! WOW! Now that’s a nice upward revision, eh?

My two cents on this is that the RBA wants to raise rates, but is waiting right now, to see what unfolds globally… Remember, their rate hikes were fast and furious six months ago. And… Remember I told you that I thought the RBA would wait to hike rates again until their meeting in August… So, that’s still my thought, and it’s out there on the table for people to shoot holes in…

Speaking of holes… You’ll have to figure this one out, folks… The Swiss franc is still dancing in the conga line, even if the loonie had to sit out for a song or two. The franc has seen some Swiss National Bank (SNB) intervention to keep the franc from getting too far out of whack with the euro. But now that the euro has gained back some lost ground in the past week, the SNB can take a break. For those of you new to class, the SNB sells francs against euros to bring that “pair” in line…

Long time readers know that I’ve thrown the UK under the same bus as the US was thrown under… But, I’ve got to back off some of that now, as the UK has announced some very strong austerity measures, and deficit reducing plans that I like… Now, I’m not saying that all’s well there, and we should look to buy pound sterling (GBP) again, right now… But… For those who are what you call “contrarian investors,” this is what they would do…

And it was a tough row to hoe for gold last week… But think about this for a minute, if you’re a conspiracy nut like me… It was month end/quarter end, and according to the GATA people (the gold antitrust people that are trying to sue the major banks for manipulating the price of gold), the major banks have HUGE short positions in gold… So, my conspiracy mind was racing so fast, and it came up with this thought… The major banks manipulated the price of gold down at quarter end so that their books wouldn’t look so bad… Hey! It’s a thought… Why do you think gold fell so hard at quarter end?

I would think that with a lot of the bearishness in the euro pushed to the roadside at this point (except for the guys calling for it to go to parity!), that would point to more dollar weakness, and that “should” be good for gold…

I actually believe that since gold hit ,265 in June, and then slipped back to near 00, that these could be looked at as “dips” and good entry points… But then, that’s me, and I’ve said before that there’s never a “bad time” to buy gold, as long as you’re buying it to hold…

The data cupboard is pretty bare this week after printing all that data last week, which culminated in the Jobs Jamboree on Friday. We will see the ISM non-manufacturing (Service) Index today, but no biggie… I would suspect that the services sector would show the same type of slowdown that the manufacturing sector showed last week.

Then there was this… As reported in the USA Today…

“The next big setback for the US job market might come as layoffs by state and local governments, under pressure to slash their payroll to narrow their budget deficit. As many as 400,000 workers could lose their jobs during the next year, said Mark Zandi, chief economist for Moody’s Economy.com. Together, states are confronting a 0 billion budget shortfall for fiscal 2011. Meanwhile, federal aid is shrinking. Money for states from the economic stimulus is expected to fall by billion, says the National Governors Association. And the Senate last week failed to pass a measure to provide states billion for extra Medicaid funding, an initiative that would have extended benefits from last year’s stimulus. The House approved billion in enhanced Medicaid funding.

“The downturn has gone on so long, all the low-hanging fruit has been taken,” says Scott Pattison, head of the state budget officers group.”

I shake my head, and wonder…

To recap… The Jobs Jamboree last Friday for May was very soft with only 83,000 jobs created, and the net jobs counting census workers was negative! The markets reacted the way fundamentals would dictate for once, and the dollar was sold. The selling continued last night, after a brief rally in the dollar. The RBA left rates unchanged today, but their policy statement was hawkish… And gold attempts to recover from last week’s sell off.

Chuck Butler
for The Daily Reckoning

Dollar Gets Sold On Bad Data Prints originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

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UN Strongly Recommends SDRs Over Dollar as World Reserve Currency

Jun 30th, 2010

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Yesterday, the United Nations released a new report suggesting it’s time to stop using the dollar as the world’s single major reserve currency, noting it has shown “not to be a stable store of value,” and recommending its replacement with the IMF’s currency basket, called special drawing rights (SDRs).

The report came out of the UN Economic and Social Council and, according to Reuters, here’s what they said:

“‘The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency,’ the U.N. World Economic and Social Survey 2010 said. The report says that developing countries have been hit by the U.S. dollar’s loss of value in recent years.

“‘Motivated in part by needs for self-insurance against volatility in commodity markets and capital flows, many developing countries accumulated vast amounts of such (U.S. dollar) reserves during the 2000s,’ it said.

“The report supports replacing the dollar with the International Monetary Fund’s special drawing rights (SDRs), an international reserve asset that is used as a unit of payment on IMF loans and is made up of a basket of currencies. ‘A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency,’ the U.N. report said.”

The UN now joins several vocal critics and nations, especially Russia and China, who have been expressing a strong desire for reserve currency options other than the dollar. Who can blame them? Since the inception of the Federal Reserve the dollar has lost well over 90 percent of its value.

When it comes to stable stores of value, particularly in a time of extreme money printing all over the world, it would make sense to see gold more actively discussed in this type of report. Central banks have certainly noticed gold is beholden to no nation’s printing press and lately have been doing some “peacocking” of their yellow metal assets. Saudi Arabia, for one, recently “restated” its gold reserves… so that they more than doubled in value overnight.

You can read more about the story in Reuters coverage of a UN report on scrapping the dollar as the world’s sole reserve currency.

Best,

Rocky Vega,
The Daily Reckoning

UN Strongly Recommends SDRs Over Dollar as World Reserve Currency originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Daily Reckoning
gold

Aussie Dollar Rallies on PM Change

Jun 24th, 2010

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Front and center this morning, Julia Gillard became Australia’s first female prime minister after Kevin Rudd stepped aside as leader of the governing Labor Party, paving the way for the government to drop a controversial new 40% levy on mining profits that has damaged its standing in voter polls.

That’s right! Remember a week or so ago, I printed a quote from Bill Fleckenstein, who said then that it looked like the 40% mining profits tax was in jeopardy… So… All the damage the Aussie dollar (AUD) had to suffer because of the prospect of this tax was for naught… And caused large losses to Aussie dollar holders… That’s shameful!

The Aussie dollar is rallying this morning on the shake up in Prime Ministers and the thought that it was done to deep six the mining tax proposal… Good riddance!

What about the rest of the currencies, you may be asking at this point? Well… They seem to be trading in yesterday’s clothes once again. The Swiss franc (CHF) inches higher, but for the most part the currencies are flat compared to yesterday’s levels.

The other Big News yesterday was the awful New Home Sales data…

Well, boys and girls… The trap door on New Home Sales was sprung in May… Here’s the skinny as reported by the Commerce Department… “New home sales fell in May from a month earlier to a seasonally adjusted annual sales pace of 300,000. That was the slowest sales pace on records dating back to 1963.”

1963… The Beatles premiered here in the US on the Ed Sullivan Show! So, I guess we have quickly learned that without “government assistance”… Sales of new homes collapse, and sink 33% to the lowest level on record as potential buyers stop shopping for homes once they can no longer get government incentives.

Because the credit was eligible only up to an income cap of 5,000 for single-taxpayers and 5,000 for married couples, it had a disproportionate impact on homes sold for less than 0,000. New home sales above this price point have hardly budged for the past seventeen months!

Another government spending boondoggle like the 0 billion in tax rebates from three years ago… Or the Cash for Clunkers… Or the funding of Fannie and Freddie… Or the, oh forget it… I’m tired of pointing out these spending boondoggles and the markets not paying attention to them!

As Dieter would say… “I’ve grown tired of your babble… We dance now!”

In Canada yesterday… Retail sales declined 2.0% in the month of April, which almost fully reversed the 2.2% increase in March… This was NOT the retail sales data I was looking for! Taken with Tuesday’s print of CPI that was weaker, I would have to say without a doubt, that the prospects for a rate hike from the Bank of Canada at their meeting in July are slim and none… And slim just left town!

The Canadian dollar/loonie (CAD) weakened a bit on the disappointing retail sales print, and rightly so… But to me, it was a welcomed move, for it allows investors to buy some loonies at cheaper levels today!

I saw a list of reasons why Canada is a great place to be while reading an article by Eric Fry in yesterday’s issue of The Daily Reckoning titled, “Don’t Underestimate Canadian Economic Growth”… Among the many reasons were these two, which I really liked…

“4) Freedom to travel abroad where all countries welcome you and like you.

“5) A banking system that works. Sorry, no easy way to buy a home without 10% down at least.”

But here’s another that I came across… Canadian household net worth climbed to C$ 6.0-trillion in the first quarter…

Canadian household net worth increased by 1.3% ( billion) in the first quarter of 2010 to C$ 6.0 trillion. This marks the fourth consecutive quarterly improvement in household net worth and reflects a 96% recovery off the net worth lost during the recent economic downturn.

I tell you all this, not because I want to live there… But to illustrate to you why investors would look to Canada and the Canadian loonie…

The Fed’s FOMC meeting was quite interesting yesterday… And in the end, I do believe that my call several months ago – when everyone else was claiming that the US would be raising rates by now, and I steadfastly said, “no they won’t” – is looking bang on, eh?

The Fed left the rate unchanged, no surprise there… But they really pointed out that the economy was sputtering… And I now believe that their statement, “Rates would remain low for an extended period” now means, “For much longer!” At this point, who would argue with me regarding the Fed’s moves? I’ve been all over them like a cheap suit going back to August of 2007, and telling you what they were going to do months before they did it, and this “no rate hike for 2010” is just another feather in my cap!

And here’s another thing that I’ve said over and over again, until I’m blue in the face, and that is… That the US woes can’t be solved by a revaluation of the renminbi (CNY)… The Bloomie has a story this morning quoting a spokesman from the Chinese Foreign Ministry, who said exactly what I’ve been saying… “The US woes can’t be solved by a revaluation of the renminbi…and American leaders will help no one by politicizing the issue.”

He went further to say, “Renminbi appreciation cannot help to solve US problems of unemployment, overconsumption, and low saving rate.”

But… Unfortunately, it looks like that knucklehead Schumer is going to push for legislation that would punish the Chinese for the lack of renminbi appreciation.

So… I guess that China’s announcement last Saturday to allow more renminbi flexibility is a thing of the past now, for there is this saber rattling in Congress, and now calls for this all to be discussed at the G-20 meeting this weekend.

I guess this qualifies as a “too much, too little, too late” for the Chinese… But I wish these knuckleheads in Washington DC would stop and listen to what the Chinese have been telling them for years now… “Get your house in order!”

Before I head to the Big Finish… I wanted to include a snippet from yesterday’s newsletter that’s written by my friend, David Galland… He’s talking about things going on here in the US:

“And it’s not just economics. Over the weekend I re-read both the Declaration of Independence and the Bill of Rights, and it struck me that if the Founding Fathers were alive today, they would be considered terrorists and rounded up. Furthermore, because the Bill of Rights has been all but voided at this point, they might be dropped into the equivalent of a dark hole with no right to a speedy trial, or any trial at all, for that matter.

“Trading our freedoms for security is a bad decision because, in the end, the nation will be neither free nor secure. Much in the same way that, to paraphrase one sage, a government that habitually saves all fools from their bad decisions, ultimately creates a nation of fools.”

Then there was this… According to The Wall Street Journal… “The FDIC said the fund, which is under water by about billion amid a surge of bank failures, won’t reach its statutory minimum funding level (1.15% of insured deposits) for at least seven years. Even if the economy somehow muddles through the Gulf oil disaster, the still-gathering euro crisis and who knows what else, the FDIC’s estimate puts a full deposit fund recovery off till the first quarter of 2017, all else equal.”

To recap… Australia has a new Prime Minister that has removed the ads for the mining tax… The Aussie dollar has responded positively. The rest of the currencies are pretty flat to yesterday’s levels. The Fed is not so “cocky” about the economy any longer. Canada prints a disappointing retail sales report, and New Home Sales plunged 33% in May!

Chuck Butler
for The Daily Reckoning

Aussie Dollar Rallies on PM Change originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Daily Reckoning
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Aussie Dollar Rallies on Death of Mining Tax