Commodity Currencies… You’ve Gotta Love ’em!

The currencies gave back all that ground they gained the day before on Mr. Toad’s Wild Ride, yesterday… But, have turned around this morning in the European session as Eurozone stocks are up, and whenever equities trade with some zip in their step, it has been good for the Big Dog, euro (EUR)…

Someone asked me yesterday a question about the euro… He said, “Chuck, I know you like the euro, but couldn’t the Aussie dollar (AUD) be a better choice going forward?” And I answered like this… The euro is the offset currency to the dollar… But that doesn’t mean it is the best performer when the dollar moves down. The Aussie dollar has outperformed the euro since 2002, and will probably continue outperform the euro… But so has the Norwegian krone (NOK), and the New Zealand dollar (NZD), and the South African rand (ZAR), and the Canadian dollar (CAD)… Hmmm… Does that list ring a bell?

Why, yes, Chuck, it does! For these are all “commodity currencies”… You’ve gotta love ’em!

Countries that have “stuff” to sell to other countries, that either don’t have the “stuff” or are too lazy to deal with it!

Well, you had a one day window to buy gold cheaper, for the overnight sessions has the shiny metal hitting on all cylinders, and soaring once again to $1,148! Don’t you just hate those one-day windows? I mean, you wanted to pull the trigger and buy, but thought, what if gold drops more today, that would mean I could buy it cheaper tomorrow… Don’t be fooled! It’s like this, folks… If you want to buy something, buy it! Trying to time a purchase will leave you sitting on the sidelines with a baseball cap turned backward on your head and holding a clipboard!

OK… Remember when I questioned the current administration’s claims that instead of “creating jobs” they were “saving jobs”? I pointed out that claiming that jobs were saved would be difficult to prove… Well, guess what? Proving that the jobs saved don’t exist has been pretty easy… And the people claiming that the stimulus “saved jobs” have egg all over their collective faces.

One of my fave economists, Nouriel Roubini, had this to say about jobs…

“Think the worst is over? Wrong. Conditions in the US labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%.

“While losing 200,000 jobs per month is better than the 700,000 jobs lost in January, current job losses still average more than the per month rate of 150,000 during the last recession.

“Also, remember: The last recession ended in November 2001, but job losses continued for more than a year and half until June of 2003; ditto for the 1990-91 recession.

“So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.”

And you think the recession/depression is going to end with the unemployment problem in this country? Not when the consumer is needed to generate nearly 70% of the GDP.

And all that tells me that the cartel/Fed is going to believe that they need to keep rates near zero for some time to come.

Yesterday’s data cupboard was a mixed bag of economic data as the US PPI wasn’t as strong as forecast, industrial production slowed in October, but capacity utilization bumped higher, and the TIC Flows for September were $40.7 billion, which was more than the $34.2 billion in August. The report showed that Japan, China and the UK all increased their holdings of Treasuries. September’s TIC Flows were probably the best report of the day, and the best report that this series has printed in a long, long time. Does this mean that the all-clear horn is blaring, telling us not to worry anymore about whether we finance our deficit or not? Well… It might be, but I’m not listening to it!

Well… The President ended his visit to China, with a call for a more flexible Chinese currency (renminbi). And… The Chinese said… Nothing! They met the President’s words with silence. I used to date a girl that would (when I wasn’t talking)… “Silence is Golden, Chuck” and I would say… “Then shut up and we’ll make a million!” HA!

Now, while it would nice if the Chinese played ball with us… I understand their dilemma… The IMF still believes that China’s currency is about 25-40% undervalued. China could not deal with a floating currency that went up 40% overnight!

Did you know that America’s trade deficit with China widened to a 10-month high in September? Well… It did, thus raising concerns that the combination of a recovering US economy and a fixed renminbi (CNY) exchange rate against the dollar will worsen global imbalances. But… As I’ve said at least 100 times before… The Chinese will do what they believe is best for their country, and that’s not floating the renminbi at this time, no matter who the US sends to visit them to persuade them to do so!

Moving further south in the Pacific, we land in Australia… I thought about the Reserve Bank of Australia (RBA) quite a bit the past couple of days… And have come to the conclusion that the December 1st meeting of the RBA will net another 25 BPS rate hike. The reason I think this, is the fact that there will be no meeting in January, thus leaving a two month gap, which in these economic times could be devastating… So… Look for another rate hike in Australia on December 1st… It would be their third consecutive meeting rate hike, and could be the harbinger to parity for the Aussie dollar.

I know that yesterday morning, I talked about how the RBA meeting minutes had been perceived as “dovish”, and that spooked the markets into thinking that the RBA would NOT hike rates in December… But upon further review, the meeting minutes were really pretty vague, and while they didn’t sound outright hawkish, they also didn’t sound “dovish” either… After reading the minutes, I got the feeling that overall, the minutes support the idea of “steady rate hikes”. I don’t think the RBA will stop until they reach an internal rate of 4.25% early next year.

I was giving an interview last week with a writer from BusinessWeek… And he asked me when this dollar weakness all started… I told him that, “Over the past nine years congress and two administrations have instituted fiscal policies that have undermined the value of the US dollar, and the deficit spending has gone from $350 billion budget deficits to $2 trillion (annualized) budget deficits in the blink of an eye. So… The dollar made brief comebacks in 2005 and in the financial meltdown of August 2008 through February 2009, but other than that, the dollar continues to decline, and I just don’t see anything on the horizon that will stop this decline.”

Well… As I look across the desk at the currency screens, I notice that every currency that’s supposed to be lighting up green (going up) is doing so, and every currency that’s supposed to be lighting up red (going down) is doing so… We’ve got it all going on today.

OK… To recap… The currencies have gained back the ground they lost in yesterday’s “risk off” trading sessions. Gold is back to soaring after a 1-day stall… Data yesterday in the US was a mixed bag. Chuck expects the RBA to hike rates in December, and China responds to the US President’s request to allow greater flexibility in the renminbi… With silence.

About Chuck Butler 105 Articles

Affiliation: EverBank

Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter.

With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News, World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune.

Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.

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