Currencies are Mounting a Mini-Rally Versus the Dollar

Yesterday’s price action in the currencies versus the dollar was a drag, man… We did, however, see the higher yielding currencies begin to move away from the pack of currencies led by the euro (EUR). That move higher by the likes of Australia (AUD), Brazil (BRL), South Africa (ZAR), and others, carried over through the overnight sessions, so, as we start today, they are stronger versus the dollar… In fact, the Aussie dollar is near a 7-week high this morning.

Another thing helping to boost the Aussie this morning was the news overnight that China reported that exports had increased the most in three years, last month… For those of you keeping score at home… That’s a 46% increase in exports during February for China! Now… I can hear some of the new readers saying, what in the world do China’s exports have to do with the Aussie dollar rising? Ahhh grasshopper, come sit…

You see, Australia is a raw materials (commodities) rich country, which supplies China with all the raw materials they need to build their infrastructure. When China slowed down, it caused a chain reaction to Australia… But… As we’ve seen in the past nine months, China was the first to come out of the economic slowdown, and this report confirms that they are hitting on all 8 cylinders right now… So, as the old saying goes… What’s good for the goose is good for the gander… And what’s good for China is good for Australia!

That can be carried over to the commodities, too… What’s good for China is good for commodities… And looky here, copper, for instance rose $24 on the Chinese news!

The Reserve Bank of New Zealand (RBNZ) meets this afternoon to discuss rates… I would be very surprised to hear that the RBNZ hiked rates this afternoon… Like I said the other day, I think that they will wait another month… But, does this present us with a buying opportunity before the hike? You bet your sweet bippie it does!

The news from Germany this morning wasn’t helping the beleaguered euro any… German exports fell in January according to a report printed this morning. You may recall about a month or so ago, I told you how China had replaced Germany as the #1 exporter… Well, that difference between the two must be widening, given Germany’s slumping exports, and China’s 46% increase last month!

Hey! The rate hike campers here in the US had to lower their flags yesterday, after Chicago Fed President, Evans, said that he “expects the central bank to hold its target rate (Fed Funds) at a record low for the next ‘three or four meetings’”… OK… The Fed Reserve meets every six weeks… So… Given this news, it means the Fed is at least 4-5 months away from moving rates higher.

Now… I know that the markets are always looking forward… But, these are uncharted waters, folks… There’s no guarantee that the Fed will look to raise rates even in 4-5 months! So… The looking forward thing is treading water carefully, watching for those sharks that live on the land!

The Canadian dollar/loonie (CAD), has backed off the lofty level of 0.9770 it reached yesterday… Things are looking good for the loonie… I mean, Canada doesn’t have the subprime mess to deal with… Their housing boom was never even close to that in the US or the UK… And the list goes on… But let’s not leave out rising oil prices, and commodities remaining in their bull market… It’s all good for the loonie these days.

Speaking of the commodity bull market… I’ve not gone on here for some time, and believe that, since I mentioned it, we could discuss it today… OK… Well… Long time friend, Jim Rogers (yes that famous Jim Rogers) wrote in his book on commodities, that for the past 400 years, commodity bull markets run between 17-22 years in length of time… Well… Lets see… This commodity bull market began about nine years ago, right? So, that means we’re only about half way through the “normal” or “historical” bull commodity market.

Now… This is where it would be good to discuss trends… Trends begin for a fundamental reason, and normally do not end until that fundamental reason has been corrected… However, a trend is not a ONE-WAY street. There can be volatility within a trend that will fool or trick people into believing the trend has reversed… Only to find later that they were wrong…

This current weak dollar trend is a good example… You see, we’re experiencing dollar strength right now… But does that mean the weak dollar trend is over? Not in my book! For the fundamental reason, that deficits being too high, has not only not corrected, it’s gotten worse! So, mark this down, and the same can be said for the commodities, as one of those periods of volatility within a trend…

Then there was this… Did you see the news that the FDIC is encouraging public pension funds to invest/inject capital into failing banks? If you just screamed really loud “WHAT?” then you joined me, because that’s exactly what I did when I read that headline in a NY Times article that was sent to me… Why in the world would public pension funds want to inject capital into these failing banks? And even more important than that question, why is the FDIC “encouraging” these public pension funds to do so?

Well… I can come up with a number of reasons for the FDIC to be “encouraging” that this be done… But, what I’m sitting here banging on the typewriter keys about this morning is the fact that this uses “real dollars”… Not ones that were printed out of thin air, like the Treasury gives to the Fed to use… They aren’t future guarantees either… They are “real dollars” that are about to be thrown at failing banks that have already had money thrown at them and they still can’t make it!

I shake my head in disgust at this attempt to get these bad loans off the government’s books and onto the public balance sheet…

None of the bailouts should have ever been done, and we wouldn’t be still messing with all of this! It’s like telling a lie… Once you tell it, you have to keep adding on to the lie, until it gets so big that it explodes in your face… We started this bailout mess, and it just keeps growing and getting bigger and bigger all the time.

To recap… The currencies traded in a tight range versus the dollar for most of yesterday. The higher yielding currencies did gain ground versus the dollar, and that carried over throughout the night as China posted a 46% rise in exports! German exports slumped in January, and the Canadian dollar backed off its lofty level from yesterday, which means it’s cheaper today… Wink, wink…

As I begin to head to the Big Finish, the currencies are mounting a mini-rally versus the dollar, with the euro trading higher to 1.36, which has seemed to be the real hurdle for the single unit… Every time the euro begins to trade above 1.36, it gets smacked right back down again… Makes you wonder if there’s something going on here, eh?

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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