Aussie Dollar Rallies Overnight But What About Kiwi?

Good day. What a day yesterday! After hitting “Send” on the Pfennig, I began to do all that “stuff” I needed to get done so I could get out of here and to the hospital for my scans. The “system,” you know that brand-spanking-new “system,” doesn’t let me in to it that early in the morning! So I was scrambling around all morning, all my plans up in smoke! But thanks to Keith Rigdon for getting that all fixed.

I left you yesterday with the thought that the currencies and metals had found some terra firma. But as the morning went along, that terra firma proved to be false footing, and soon, the currencies were heading lower.

At first, gold held its gains, but in the afternoon, another criminal takedown of gold occurred. OK, that’s a pretty harsh word to describe the losses gold took, but to me, it is criminal, the way these takedowns happen. Demand is strong from everybody else — investors, hedge funds, central banks around the world — and then we have the short positions that the bullion banks have. That’s all I can say about that, but I’m sure guys who really do the detective work on this stuff — like Ted Butler, Eric Sprott and the guys over at GATA (Gold Anti-Trust Action Committee) — will probably have more for you to read on this.

But that was yesterday, but today, life goes on.

But the point I was getting to, before I went off on that tangent, was that gold was back on the rally tracks this morning, up $9. But it has a long way to go before gaining back the $25 takedown yesterday. Silver is also gaining this morning, so it would be nice to see these two metals hold on, and even add to these gains, today.

The euro (EUR) fell from 1.2325 to 1.2250 yesterday afternoon. In my best Andy Rooney voice, Have you ever wondered why currency traders flip-flop from day to day? They flip-flop minute to minute! But ever wonder what goes into their minds to push, for example, the euro down by three-fourth of a cent on Tuesday, only to say on Wednesday, “we had better sell the dollar today ahead of the FOMC meeting minutes, which could give signs of more stimulus”? I mean, they knew the FOMC meeting minutes were going to print this afternoon. I told you they would print this afternoon on Monday! It just doesn’t make sense, but that’s Mr. Market — try and figure him out!

The Australian dollar (AUD) saw a very nice gain overnight, after it was reported that Aussie consumer confidence had gained 3.7% to a five-month high! Apparently, the economists there think that this gain in consumer confidence has something to do with the 1.25% in rate cuts that the Reserve Bank of Australia (RBA) has implemented in the past eight months.

You may recall me telling you recently that Australia had seen a greater-than-expected retail sales report, and that the building approvals had a record month and that 123,000 new jobs had been created so far this year in Australia. That, to me, would indicate the need to hike rates, but in this environment, with most central banks cutting rates, I doubt that we see the RBA opt for a rate hike right now.

This afternoon, Australia will print their latest jobs data report. Right now, the “experts” are forecasting zero gains in jobs for June. You may recall that last month, these same “experts” were also down in the forecasts for Aussie jobs and were made to look as though they had egg all over their collective faces, when the 38,900 job gains were reported. In fact, I read somewhere that the forecasters have been wrong with their too-bearish forecasts quite often lately. So we could see that happen again, and if it does, it could be the catalyst for a move to $1.03 for the A$.

I had someone send me a note yesterday telling me to be careful talking so glowingly about the A$, for it was overvalued, and that I should instead look to the A$’s kissin’ cousin across the Tasman, New Zealand’s dollar (NZD). Hmm… Hey! I used to love the N.Z. dollar/kiwi, but they have a very nasty trade deficit. Being an island nation, they have to import a ton of stuff, and when the N.Z.$/kiwi gets too strong, it usually gets whacked by the Reserve Bank of New Zealand (RBNZ) governor Alan Bollard. But Bollard will exit the RBNZ in September, so maybe, just maybe, the new governor won’t have a vendetta against a strong kiwi like Bollard does.

Yesterday morning, Ty Keough yelled over to me that the strike in Norway’s oil and gas production has been averted. That was good news. Recently, I’ve mentioned how the Norges Bank (Norway’s central bank) had been mentioning the need to hike rates to combat the housing bubble going on in Norway. But just like the RBA, to hike rates now in this rate-cutting environment going around the world would stick out like a sore thumb. Instead, the central bank has put pressure on banks to do the right thing.

Really, I’m telling you the truth. Norway’s finance minister Sigbjoern Johnsen said that banks have “an obligation to say to people I think that by taking a loan this size you might get water over your head.” Yes, that’s all nice and such, but will it really happen that way? Norway’s banking sector is strong, so maybe, just maybe, you never know!

Spain’s Prime Minister Mariano Rajoy announced this morning that he had increased taxes and found other spending cuts that would reduce Spain’s deficit. This is the fourth austerity package that Rajoy has announced in the past seven months. So just about every other month a new austerity package…

So it’s not just here that the taxes are going to be going higher, folks. You’ll have to find a country that doesn’t have debt coming out their ears to escape higher taxation. That leaves out the big three: the U.S., the U.K. and the eurozone.

The U.S. data cupboard today will have the color of May’s trade deficit for us to look at. Look for a modest narrowing, given the reduced oil price. But the real meat comes this afternoon with the minutes of the last FOMC meeting, although given last Friday’s weaker-than-expected weak jobs report here in the U.S., one would think that these meeting minutes would be stale. But you never know, there could be a goodie in these minutes for the markets.

Then There Was This: From The Wall Street Journal this morning:

“The Commodity Futures Trading Commission voted Tuesday to finalize definitions and exemptions that set in motion parts of the new regulatory regime for complex derivatives called ‘swaps.’

“The commission’s vote triggers other rules, such as reporting requirements and swap-dealer rules, marking a major step in the regulatory overhaul of the derivatives market that Congress set in motion with the 2010 Dodd-Frank law.

“The vote also triggers new limits on speculation in derivatives markets that were passed by the commission last fall and have been the target of a lawsuit filed by trade groups late last year.”

Yes, that’s all good, but what’s it do to the outrageously large short positions that the bullion banks have? As Edwin Starr said, nothing, absolutely nothing!

To recap: The attempt by the currencies and metals to get on terra firma yesterday proved to be nothing more than false footing. The takedown of gold in the afternoon was harsh, and came when demand from all sectors is strong. Only the bullion banks own short positions. The A$ rallied overnight after a stronger-than-expected gain in consumer confidence, and the strike in the oil and gas production sector of Norway was averted yesterday.

Chuck Butler
for The Daily Reckoning