China Boosts the Euro

Front and center this morning, the euro (EUR) is pushing higher on some words from Asia… Seems that China is very much behind the euro, and made statements related to that thought, which really put some starch in the euro’s shorts overnight. The thing I worry about right now, is the European Central Bank (ECB) meeting that’s going on as I type my fat fingers to the bone… The ECB could crush this mini-rally in the euro in a heartbeat by saying the “wrong thing” at their press conference that will be held after the ECB announces that rates will remain unchanged.

Or… Given ECB President, Trichet, says the “right thing,” the euro could very well add to its gains today… You see, with China giving the euro the “vote of confidence” it needed, the single unit has the base it needed to rally… Now it just needs follow through! Let’s hope that China’s “vote of confidence” doesn’t turn out like the “votes of confidence” professional team managers get from owners!

The Reserve Bank of New Zealand (RBNZ) hiked rates last night, just like I believed they would. The RBNZ increased the Official Cash Rate (OCR) by 25 basis points to 2.75%.

RBNZ Governor Alan Bollard said: “The economy has entered its second year of recovery with growth becoming more broad-based.” Bollard went on to say a lot of very positive things about the New Zealand economy, and the Asian economies. The New Zealand dollar/kiwi (NZD) was the best performer overnight, for not only did the official cash rate rise, but the Central Bank Governor didn’t try to water the hike down… So, that leaves Pandora’s Box of additional rate hikes for New Zealand, wide open!

The Aussie dollar (AUD) also got in on the fun with their kissin’ cousin across the Tasman, when the Aussie jobs report showed an increase in employment that was driven by an increase in full-time employment. The unemployment rate fell from 5.4% to 5.2%, the lowest since January 2009… I still think that the Reserve Bank of Australia (RBA) will wait until August to hike rates again… But nevertheless, the Aussie dollar is stronger this morning on this report and the overall feeling about Asia this morning.

The Aussie dollar is also getting some wind in its sails from the idea that the mining tax that has been proposed on mining profits, might not get a chance to be voted on… One of my fave writers, Bill Fleckenstein, had this to say yesterday…

“For those who have been worried about the Australian mining tax, the Rudd Administration is now losing badly in the polls. A Bloomberg story today suggested that this tax proposal is helping Rudd’s opposition, so it’s looking less and less like that plan will be implemented as proposed.”

It’s really nice for once to come in and not see the screens full of news about Eurozone debt problems, or the talking heads on TV talking about Greece, etc. Instead, the screens are full of news about the overall feeling in Asia this morning…

You see… China reported a very strong exports number last night, and all is right on the night again with China! China’s exports jumped 48.5% in May (from a year earlier), which turns out to be the biggest gain in six years!

Here in the US the news that dominated the airwaves was the Big Ben Bernanke testimony to lawmakers in Washington DC yesterday… He said quite a few things… Mostly about how the economic recovery in the US is building strength but will remain weak, as far as recoveries go… I heard him say two things that caught my attention.

1. “Unless we as a nation make a strong commitment to fiscal responsibility, in the longer run, we will have neither financial stability nor healthy economic growth.”

And 2. Well… I guess I’ll have to change my stance on my views that the US economy will experience a “double dip” recession… For yesterday, Big Ben Bernanke even muttered words about that possibility to the lawmakers! Now… I’m not going to allow Big Ben to jump on my bandwagon! He’s going to have to find his own… He does already own a helicopter! HEHE!

The Fed’s Beige Book showed that economic activity improved in all 12 districts in May… I won’t argue with that… But the cable news and pundits that just report that and not the whole story are there to lead you to ruins, folks… The economic activity improved because of government spending, period.

The Canadian dollar/loonie (CAD) is back on the rally tracks this morning. The loonie is rallying on the back of a huge jump in the price of oil yesterday and overnight! Yes, the price of oil gained $3 in the past 24 hours… So, Jack Bauer isn’t the only person/thing to get things done in 24 hours!

Unfortunately, the price of gold has dropped, with all this euphoria of stronger economic growth… Yes, the IMF warned yesterday that global growth is flirting with a double dip… But this morning, based on the China data, and everything else, the IMF statement is getting swept under the rug. We’ll probably come back to it at some time in the future, but for now… It’s all in on global growth…

But that means that this is just a temporary dip in gold… And you know what I always say about the dips…

So… Before I head to the Big Finish this morning… The Big Dog, euro, has once again attempted to get off the porch and chase the dollar down the street, which means all the little dogs, like Norway, Sweden, Swiss, Denmark, and others, get to run too!

Then there was this… This came across my desk from MarketWatch this morning… “The government’s actions in rescuing American International Group Inc. with a $190 billion bailout averted an economic collapse, but also continue to have a poisonous effect on the marketplace, a key government watchdog said Thursday. The Congressional Budget Office estimates taxpayers will lose $36 billion with AIG…” Hmmm… I wonder if the President will be doing any kicking tail on this one?

Chuck Butler
for The Daily Reckoning