Everybody Is Happy With Their Monetary Policy

And now… today’s Pfenning for your thoughts…

Good day, and a Tom terrific Tuesday to you!

So, I turn on the currency screens and I say, “Whoa!”  There are only three currencies that we follow that are down vs. the dollar this morning, and they are… drum roll please… the Chinese renminbi, Singapore dollar, and Mexican peso. The rest are moving upward nicely vs. the dollar this morning. It wasn’t the data yesterday, or anything like that, so I’ll have to do some investigation here. Hold the phone, I’ll be back in a minute!

OK. Well, it’s not so simple, but here’s what I think is going on today: Overnight and in the early morning trading, we had some Central Banker around the world, talking glowingly about their current monetary policy, and how the accommodating policies are all working. This kind of talk led the markets to believe that if their current policies are working, then they won’t be moved to add to them, and that got everyone lathered up and ready for a currency rally.

Leading off was the European Central Bank (ECB) member Noyer, who was emphatic when he said that the ECB’s Quantitative Easing/QE represented the “right amount” of stimulus, thus knocking those that were selling euros ahead of the ECB meeting this Thursday, because they thought the ECB would add to stimulus, from their perches, and the Big Dog euro was allowed to get off the porch to chase the dollar down the street. And when that happens, we usually see the rest of the little dogs/currencies follow.

The Reserve Bank of Australia (RBA) also got into the “we’ve done good” talk, and indicated that chances for a further rate cuts are low.. Even the Riksbank’s former governor told reporters that Sweden’s monetary policy is on the “right path”.  So, everyone, save for three, is feeling pretty perky this morning, it’s all good for them, and they have expressed that to the markets who have bought their currencies accordingly.

Also this morning, the Eurozone reported that in August they remained a Surplus Current Account region.  I’ve talked about this so many times in the past that I almost just skipped to my Lou right past it, but then I thought about new readers might not have the info.

So, basically, I give the euro the nod over the dollar because of the Current Account Surplus in the Eurozone. The Eurozone has held this advantage over the U.S. for several years now, and when people used to ask me why the euro with all its problems was stronger than the dollar, and I would point to this.

The Chinese renminbi saw a larger than usual daily depreciation last night. There was no data or anything like that so I’m wondering what was behind this downward move. I mean the Chinese should be happy that the U.S. Treasury dropped their view that China’s currency was “significantly undervalued”.  Makes you wonder just what the U.S. Treasury is looking at, doesn’t it?

I mean 2015 has not been a good year for renminbi appreciation, in fact the renminbi is down -2.25% year to date vs. the dollar. So, if the U.S. Treasury thought that China’s currency was “significantly undervalued” before, how could they not still see it that way, since it’s 2.25% below its value the last time it came up for review?

You don’t think that China sent a memo and told the U.S. Treasury to “knock it off, and to quit criticizing their currency” do you? Nah. that can’t happen. That’s the U.S. Treasury you’re talking about there Chuck! Watch your mouth!

Oh, also on China, the U.S. Treasury said these nice things about them:

The core factors that have driven the appreciation of the renminbi in recent years remain in place, such as a large and growing Current Account Surplus, and net inflows of Foreign Direct Investment.

WOW, that was nice wasn’t it?  So, why did they back off their previous statement?  Only the Shadow knows.

Oh! And thanks to my friends Dave Gonigam and Addison Wiggin, over at the 5 Minute Forecast for quoting what I said about China making the Big Switcheroo, in their Monday edition! I’ve said it before and I’ll always say it, I do believe, that I love it when I see my name up in the lights!

Well the election in Canada has seen just about all the votes counted, and the Liberal Party, led by Justin Trudeau, the son of the former leader Pierre Trudeau is the winner.  This win was surprising in the fact that the Liberal Party won a majority of the seats. This ends the decade long leadership of Stephen Harper.

In the initial trading over in Asia, the traders there saw this as a problem for the Canadian dollar/loonie and marked it down, but since then calmer heads have prevailed, and figured out that Canada’s strong banking and fiscal position, won’t be hurt that much with a Liberal ruling party, and the loonie rebounded.

I told you above that the RBA sounded optimistic about their monetary policy, but what I didn’t tell you was that the A$ has reacted very favorably.  I went over the RBA statement and thought that it was quite balanced. I was really surprised to see the quite “dovish” comment regarding how the RBA didn’t see the need for further rate cuts at this time.

You see, there was this grassroots campaign by the markets to push the RBA to cut rates in December. Well, these boys and girls have had to go back to square one, and re-think a December rate cut after this RBA statement.

In the U.K. Bank of England (BOE) Gov. Mark Carney will speak to the Treasury Select Committee this morning, and again tomorrow. He’s going to seek their approval for the Monetary Policy to meet only eight times per year, instead of twelve times a year.  Which would be eight times that the markets will be disappointed by no rate hike! HA!

There are still those that are holding on to the thought that Carney will hike rates soon. These are people that still believe in all sorts of things…

Well, gold is up this morning. after losing ground yesterday, the shiny metal attempts to recover that lost ground. Silver is up nicely too, but after falling back below $16 late last week, the recovery is taking time. Both Platinum and Palladium are finding terra firma tough, for them this morning.

Speaking of gold… the shiny metal has had a nice bounce from its cycle low last month. Sure it goes up and down on a daily basis, but overall the performance has been much better of late.

Yesterday, I came across an article on Bloomberg that was written by a fellow named Joe Deaux.  Joe is a guy that used to call me all the time for quotes and info on the currency and metals markets.  Like Puff the Magic Dragon, Joe doesn’t call me any longer and so I just return to my cave and cease my fearless roar.

But I digress… what I wanted to point out here is that the major media is picking up on gold’s performance, and once that happens, then the shiny metal could really get some wind in its sails.

The U.S. Data Cupboard doesn’t have much again today for us to look at. Today the Housing Starts and Building Permits for September will print, and that’s it. And tomorrow’s cupboard looks to be bare too! So the dollar will be on its own, and looking at today, that doesn’t seem to be a good option for the green/peachback.

Well, it didn’t take me long to stay away from a For What It’s Worth story, but I’ve got a good one for you today, that I came across on Reuters (I pretty much figure I can’t cause problems with something on Reuters!) which can be found here. And here are the snippets:

Now is not the right time for the United States to raise interest rates, given the global economic situation, China’s Finance Minister Lou Jiwei said in an interview published in the China Business News on Monday.

‘The United States isn’t at the point of raising interest rates yet and under its global responsibilities it can’t raise rates,’ Lou was quoted as saying.

The finance minister said the United States ‘should assume global responsibilities’ because of the dollar’s status as a global currency.

Chuck again. I thought these comments by a very influential person in China were significant because they came right after U.S. Federal Reserve Vice Chairman Stanley Fischer said policy makers were likely to raise interest rates this year, but that that was “an expectation, not a commitment”.  I think the Chinese were saying to Fischer, “oh no you won’t!” HA!

That’s it for today. I sure hope you can go out and make this a Tom terrific Tuesday!


Chuck Butler
for The Daily Reckoning

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