Negative Momentum For Dollar Grows

Good day. Well, three in a row. That’s what we’ve had…three days of wild currency trading in a row. This is great! There’s volatility. There’s volume. And, at the end of the day, there’s victory for the currencies versus the dollar! I had said previously that the second half of the year held promise for a return to the weak-dollar trend. A few more days of dollar weakness and I’ll have to move that item up on the agenda!

OK. The euro almost took out the 1.24 level yesterday, trading up to 1.2395. So much for that strong resistance at 1.2370, eh? While there was some finality to the Italian election outcome, the real reason for this strong move is negative vibes for the dollar in the market place right now. It just doesn’t feel good to own the greenback right now; the dollar’s negative momentum is really in swing.

So, having said that, the euro and other currencies have given back a bit of their lofty gains from yesterday afternoon, on the thought that the Philadelphia Fed index is going to show manufacturing in that region was strong. OK, when was the last time you saw or heard of the markets making bets on the dollar based on the Philly Fed index? They’re reaching for straws right now. Tim Fox, a currency strategist at Dresdner Kleinwort Wasserstein, said, “Today’s data could be a reminder that growth is still strong in the U.S. and that could support the dollar, but I can’t see the dollar hanging on to gains beyond today though because people are so bearish at the moment.”

We also had some hawkish statement by Fed Head Yellen that inflation is at the “upper end of her comfort zone.”

Earlier this week, I told you about how the rating agency Moodys had said they thought the previous reports citing problems in Iceland had been “exaggerated.” I thought this might be something positive that the krona could build on – unfortunately, no. The reason? Well, this is something that just comes at us from left field. Icelandic officials are talking about converting the krona to the euro, and that “talk” has the krona on the run again.

OK. Step back and recall all the heavy weightlifting the European countries had to do to meet the Maastricht Criteria to be eligible to convert their currency to the euro. Now, think about this latest story. Iceland isn’t anywhere close to meeting the criteria needed to place its krona in the ERM (the precursor to conversion). So, getting “there” will be very difficult for Iceland, and cause a lot of pain to the economy. I don’t see this news as positive for the krona.

However, Dr. Steve Sjuggerud was telling me, last month in Delray Beach, that he doesn’t think Iceland has to subject itself to the Maastricht Criteria or the ERM. He believes that Iceland could just decide that the euro is now their currency, and they would affix some conversion rate on the krona. Dr. Steve is a very intelligent man, so I value his opinion. Hopefully, if Iceland does go the euro route, this is the path they choose!

Whew! Let’s talk about China. There’s always something to talk about when it comes to China! Today, Chinese President Hu, will meet U.S. President Bush, to discuss the Chinese currency policy. I doubt anything will come of it, but there sure has been a lot of window dressing going on leading up to the meeting. China has relaxed some currency-policy rules that needed to be changed whenever they decide to “float” their currency, or at least make it more flexible. Hu has acknowledged the pressure the United States has put on him to make the currency more flexible. He has said all the right things. For example, Hu said, “We expect the currency to move faster in terms of appreciation.”

But what he fails to do, and on purpose I’m sure, is tell us how and when that will happen!

Our long-time friend, Jim Rogers, was quoted the other day while giving a speech in Singapore as saying, “the renminbi’s going to go much, much higher” (he declined to give a forecast). Jim Rogers, as you are probably aware, is the author of several investment books. His latest book is really looking good. It’s title: “Hot Commodities.” Oh, and this book was published over a year ago!

Hot Commodities are just what they are these days. And, with China growing over 10%, they will continue to be “hot!” So too will be the currencies that benefit from strong commodity prices: Australia and Canada – New Zealand and South Africa will tag along with the Big Dogs.

Talk about “hot,” how about that move in gold yesterday? Up almost $20 in one day! Wow!

Speaking of Canada, the International Monetary Fund (IMF) came out with a report on Canada saying that the Canadian GDP will show a nice steady 3.1% rise, and that the Bank of Canada needed to continue to raise rates to combat inflation. Cool beans!

Jim Rogers talked about the dollar, too. Here’s a snippet: “The U.S. dollar is in the process of losing its status as the world’s reserve currency, sterling went down 80% from top to bottom (when it lost its status as the world’s reserve currency), the U.S. dollar’s going to go down a lot in the next decade or so.”

OK. Before the Philly Fed Index today, we’ll also see the weekly initial jobless claims, which ticked back above 300,000 in March and has stayed there. In addition, we’ll also see leading indicators for March. In February, this index went negative. March’s number is expected to be flat. I don’t see signs of U.S. economic strength here, do you?

Currencies today: A$ .7430, kiwi .6315, C$ .8790, euro 1.2350, sterling 1.7825, Swiss .7850, ISK 79.10, rand 5.9875, krone 6.3250, forint 215.33, zloty 3.1550, koruna 23.08, yen 117.50, baht 37.74, sing 1.5970, INR 45.1075, China 8.012, pesos 10.9775, dollar index 88.19, silver $14.37, and gold $640.55

That’s it for today. A GREAT BIG HAPPY BIRTHDAY to my long-time friend, and the Big Boss of EverBank Direct, Frank Trotter! Frank’s one year older than me, so I like to let everyone know when it’s his birthday! Frank is in San Francisco (one of my faves). We’ll have to celebrate tomorrow when he returns! Have a great Thursday!

Chuck Butler
April 20, 2006