GDP and Dollar Growth: It’s All Happening in Australia

I have to say front and center this morning, that while it may have taken the currency traders half a day to realize that Australia had raised rates, they finally began pushing the Aussie dollar (AUD) higher versus the green/peachback. I was beginning to think that I would have egg all over my face again, when the Aussie dollar didn’t respond right away… But it was all right on the night.

I had someone send me a note yesterday that was a little confused about the statement I made about the euro (EUR) getting dragged through the same mud as pound sterling (GBP) on the crosses… So for anyone else who’s thinking that this didn’t make sense… Here’s the skinny… If traders are beating up sterling through the sterling/dollar pair… Then the dollar is getting bought… But for those who have euro/dollar pairs, they get caught in the crosshairs of the sterling/dollar pair. It doesn’t have anything to do with the fact that sterling isn’t a part of the euro, etc… It’s in the crosses… If there’s so much dollar buying versus sterling, the dollar buying will carry over to euro, and other currencies… It’s not a one for one thing… And it takes a lot for a currency like the euro to buck the trend when the dollar is so strong versus sterling.

So… Just when I talked about that yesterday, sterling began to rally versus the dollar! HA! I said to myself…

I read some research reports yesterday that suggest that the short positions with euro are beginning to fade… Hmmm… That brings me to something that I referred to yesterday on my writer rage… Recall when I told you that George Soros said he believed gold to be the ultimate bubble, but then it was revealed that his fund had been buying gold?

Yes, get you all to sell your gold, so he can buy it cheaper… Well, that’s exactly what was going through my mind when I read the story about him calling for the collapse of the euro… I wouldn’t trust that guy if he was swearing on a stack of bibles! Anyway… The research I read was a shot in the arm for yours truly who had been feeling a bit beaten and left for dead with all the bad stuff written about the euro… Yes, the euro deserved to take some losses due to the debt problems there… But again, put into the proper perspective, these losses should have been held to a minimum when compared to the debt problems here, and in Japan!

I see where the US government is telling hedge funds not to destroy trading records on euro bets… This all stems back to the thing I told you about with Goldman Sachs, where they helped Greece pull the wool over the eyes of the Eurozone with their derivatives on debt, and then created a company on the other side that shorts the euro, knowing that eventually the toxic stuff they sold to Greece would explode… Hey! I don’t make this stuff up, folks; it was reported all over the place!

Now, though… The US government is going to stick their hands in there, acting like they know what’s going on… This ought to be good…

So, to continue on with Greece… It looks like the “Chicken Littles” are returning to the roost regarding Greece’s debt, as not only is the 34 billion euros package helping, but Greece itself has announced some spending cuts that are of size, so at least they are taking this battle to heart, eh?

More good economic news in Australia last night, following up on the Reserve Bank of Australia’s (RBA) rate hike, we saw the color of the fourth quarter GDP, which climbed 0.9% from the third quarter, when it gained a revised 0.3%. I know that this isn’t near the red hot Canadian GDP which gained 5% in the fourth quarter… But… It’s now not a question of whether the economy will grow this year, but rather how strong it will be! And… Shows that the RBA’s four rate hikes so far in the past six months are warranted! There’s no longer a need to stimulate the economy, I would think, eh?

Let’s move north from the South Pacific to Japan, where there was some startling news on wages… Let’s go to the tape! Japan experienced the first gain in monthly wages in 20 months last quarter! Does this mean that Japan could really, truly, and undeniably leave deflation behind? NO… Not yet… We’ve seen these “signs” before, only to be disappointed the following month. But for now, at least, it sure looks like things are getting better for Japan’s deflationary economy.

Well… How about that Canadian dollar/loonie (CAD)? The markets took the hawkish sounding words by the Bank of Canada (BOC) yesterday and ran the loonie higher and higher versus the US dollar. Imagine there’s no US debt problem, it isn’t hard to do, imagine there’s no toxic waste on the Fed’s books through and through, imagine all the people, making things difficult for the loonie to rise… But it does anyway!

Somebody asked me the other day, why I include Illinois with California when I talk about the states in the US that have debt problems greater than the PIIGS (Portugal, Italy, Ireland, Greece, Spain)… Well, it just so happens that our bond guru, Don Ries, sent me a note yesterday from the UK Telegraph, where you’ll usually find the most excellent writer, Ambrose Evans-Pritchard… Let’s hear what mister Pritchard had to say about Illinois…

“‘Barack Obama’s home state of Illinois is near the point of fiscal disintegration. ‘The state is in utter crisis,’ said Representative Suzie Bassi. ‘We are next to bankruptcy. We have a $13 billion hole in a $28 billion budget.’

“The state has been paying bills with unfunded vouchers since October. A fifth of buses have stopped. Libraries, owed $400m (£263m), are closing one day a week. Schools are owed $725m. Unable to pay teachers, they are preparing mass lay-offs. ‘It’s a catastrophe’, said the Schools Superintendent.

“In Alexander County, the sheriff’s patrol cars have been repossessed; three-quarters of his officers are laid off; the local prison has refused to take county inmates until debts are paid.

“Bad news: we’re back to 1931. Good news: it’s not 1933 yet.

“Ben Bernanke warns more is needed to help stabilize the financial system… $800 billion boost for flagging US economies in Florida, Arizona, Michigan, New Jersey, Pennsylvania and New York are all facing crises. California has cut teachers salaries by 5%, and imposed a 5% levy on pension fees.

“The Economic Policy Institute says states face a shortfall of $156 billion in fiscal 2010. Most are banned by law from running deficits, so they must retrench.”

That’s all scary stuff, folks; and stuff we should be concerned with… Not whether or not Greece meets the Maastricht budget deficit target!

Gold sure had a great performance yesterday, adding $18 to its figure… As I said on Monday, gold was the number one pick of the presenters at the FX University Conference last week, with Norwegian krone (NOK) coming in second. Of course, I was a bit different than the rest of the presenters, as usual… I said that we could look for gains in Aussie, Canada, and Norway, along with gold and silver…

Then there was this… The US Postal Service projected $238 billion in losses over the next decade. Postmaster General John E. Potter plans to press lawmakers and the Postal Regulatory Commission in the coming weeks to eliminate Saturday mail deliveries and allow the mail agency to raise prices beyond the rate of inflation, if necessary.

Can you believe that? Another government owned business running in the red… I can see it costing us a buck to mail a letter at some point in the future! OUCH!

But… This is just another brick in the wall… We don’t need no austerity measures… We don’t need no cost controls… All in all it’s just… Another brick in the wall… The debt wall, that keeps going higher and higher.

To recap… It took a while for it to settle in, but the Aussie dollar finally began to get some wind in its sails after raising rates a fourth time in the past six months. Greece announced some austerity measures that will reduce spending, and the shorts on the euro have begun to fade. The US states that are in deficit trouble continue to grow.

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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