Oil Says Jump. Commodity Currencies Say "How High."

The bias to buy dollars is still prevalent in the currency markets this morning, after seeing the dollar rise a bit, and then give it back yesterday and in the overnight markets. I’m seeing quite a few writers change horses in the middle of the stream and now believe that the dollar is showing signs of a trend reversal.

I’m not in that crowd… That is, unless we’re just talking about a short-term trend reversal.

The Aussie dollar (AUD) is the worst performer overnight, falling below the 90-cent level for the first time in a while… The minutes from the last Reserve Bank of Australia (RBA) meeting that I talked about yesterday, are really gaining traction on the markets’ perception of the future for Aussie interest rates… Most observers now believe that the RBA will pause at their next meeting in February… Geez Louise, you mean to tell me we have to listen to six more weeks of talk about the RBA pausing? That’s not going to be good for the Aussie dollar, folks… Now, I’m not one to say the markets are wrong here, for the RBA may just pause in six weeks… But the thing that I don’t understand is how strongly the Aussie dollar investors have reacted. Doesn’t the Aussie dollar still have 300 BPS (3%) yield differential to the US, Japan, and anyone else that cut interest rates to the bone? I thought so!

Speaking of cutting interest rates to the bone, Sweden’s Riksbank met this morning, and decided to keep rates unchanged at 25 BPS (0.25%), as I suspected earlier this week… That’s just insane, folks…

I’m waiting to hear about Norway’s Norges Bank, which is meeting as I type my fingers to the bone! Like I said on our Marvelous Monday, most people/observers believe the Norges Bank will keep rates unchanged, but I’m still keeping a light on my belief that the Norges Bank could very well hike rates once again to follow up on their previous rate hike of 25 BPS, given at that time I was hoping for a 50 BPS hike, but only got 25 BPS.

Maybe they’ll announce before I sign off today… If not, Chris Gaffney – my hockey loving good friend of 20 years – will talk to you about it tomorrow.

There is a story this morning that Petroleum Investment in the world’s sixth-biggest oil exporter (NORWAY!) will decline 1.4% next year. Of course, this is a forecast, so they don’t really know for sure… I also read that oil producers need oil to cost no less than $70 a barrel to turn a profit. The cost of getting oil out of the ground has skyrocketed in the past couple of years.

So… Like the Canadian dollar/loonie (CAD), the Norwegian krone’s fortunes just may be tied to the price of oil, as we have seen the loonie rise and fall along with oil prices. So… There’s something for us to watch and key our investments on in 2010… Oil prices, and the loonie and krone (NOK). Good news for these two… And for the oil producers… Oil has jumped up $2 to $71.41…

Gold is up $8 this morning… But that hardly begins to scratch out the losses gold has taken in the past 10 days… I look at that and simply see cheaper levels to buy. That’s it… I do not see a trend reversal in the shiny metal; I do not see a huge correction back to $950, or anything like that… I simply see cheaper levels to buy.

Don’t know if you’ve noticed or not, but the Chinese renminbi (CNY) has been ticking weaker versus the dollar since the President made his visit to China to “nudge” them toward allowing their currency to get stronger versus the dollar… I find this to be quite interesting, don’t you? Ok, maybe I’m just one of those people who prefers to have people take care of their own backyard, and not be looking into their neighbor’s backyard.

So… The Fed’s FOMC meets today, and will talk to us this afternoon, spreading the good word and knowledge that they are keeping interest rates at near zero for some time… Maybe this will smack the dollar bulls in the forehead… They’ll have a V-8 moment and figure out that they were buying dollars all this week because they thought the Fed was going to move aggressively higher sooner than previously thought… But I doubt it… Those dollar bulls are like persistent little buggers!

Aside from the FOMC announcement this afternoon, we will also see the stupid CPI print for November, and the third quarter Current Account Deficit, which is expected to be $107.5 billion, up from the second quarter’s $98.8 billion… Housing Starts and Building Permits also print today… So we’re chock-full-o-data today!

Remember earlier this week I told you about how retailers in Brazil were forecasting the best Christmas shopping season in quite a long time? Well, the hard data is in, and retail sales in October were up 8.4%… So, if October is any indication of the Christmas shopping season, the retailers will be bang on!

So… Like I said, retail sales in Brazil jumped 8.4% in October… I certainly hope the Brazilian Central Bank is taking notice… For retail sales figures like that certainly indicate or suggest that inflation is on the rise… And if the Central Bank is taking notice, one would think that interest rates in Brazil would be heading higher in 2010!

Then there was this… Don’t know if you’ve been keeping score at home or not, but the yield on the 10-year Treasury is on the rise again, creeping up inch-by-inch each day, to today’s level of 3.57%… Each time this yield has gotten above 3.60%, it mysteriously goes back down, as if there was a renewed interest in buying the 10-year Treasury, that just fell out of the sky! Now, I’m not accusing the government of any shenanigans (not today, I’m not!) but doesn’t it make you wonder? Doesn’t it make you think that there is more to this than it just being a co-inky-dink?

To recap… Chuck’s being nice today… The bias to buy dollars remains in the markets, and has led some to believe this might well be a trend reversal… Of course we’ve seen this before, only to have the dollar bulls disappointed… The Aussie dollar is the worst performer of the night, as GDP wasn’t as strong as forecast, and the talk of a pause at the next RBA meeting is making the rounds, putting pressure on the Aussie dollar.