Fukui Throws A Cat Among The Pidgeons!

Good day… Well… Another range bound day, with little movement in the currencies, untill last night when Bank of Japan Gov. Fukui threw a cat among the pidgeons… I’ll get to that front and center, but getting back to the range bound trading that seems to have gripped the markets… I think it will remain that way until next week’s FOMC meeting… Mark your calendars… June 29th!

OK… Bank of Japan Gov. Fukui, decided that the time was right to announce that he believes the Bank of Japan (BOJ) needs to adjust monetary policy “without delay”… That’s Central Bank parlance for “a rate hike is needed”! These comments came as a big surprise to the markets, and gave a shot of energy to the yen. The comments also move the time frame for such a rate move closer to the present time.

As I said, yen received a shot of energy, which was most welcome by yen owners. The Japanese yen has really backed off VS the dollar recently, so… This move was nice to see, eh? I also think that it gives you an indication of what might happen to yen once the BOJ does decide to change their ZIRP… (zero interest rate policy).

As I was reading this story, the thought crossed my mind that we could be seeing the reversal of weak Asian currencies… I was reading, just yesterday, that China was seriously considering using a stronger currency to combat inflation (Hmmm, I wonder where they might have come up with that idea?… NOT that I haven’t reminded them that this would be the preferred way to combat inflation for a couple of years now!)

Anyway you look at it… When Japan drops the ZIRP, and China decides to allow the renminbi to get stronger to combat inflation, the Asian currencies should take those moves and use them as the springboard to stronger currencies VS the dollar.

OK… Sweden’s Riksbank decided to get in on the rate hike frenzy, and hiked their own rates this morning. The Riksbank added 25 BPS and then went onto to tell the markets that there will most likely be a need for slightly more rate increases, that the market doesn’t expect, over the coming year… That should be great news for the Swedish krona, which has already posted a +8% gain VS the dollar this year!

Norway’s Central Bank, the Norges Bank, has kept pace with the Riksbank, so… I’m looking for a rate hike from the Norges Bank too… Of course, these two countries began their rate hike cycle at a very low base, so it will take them time to actually compete for King of the interest rates trophy… But the thing that really gets my juices going regarding these two countries is the fact that they enjoy a positive balance of payments, which puts them high on my Hit Parade!

Yesterday I said that I was seeing signs that the rot on the Emerging Markets’ vines could be ending… And then… Well… Those signs disappeared, as South African rand, led the Emerging Markets’ currencies to the woodshed once more. Looks like the Hungarian forint could be the latest member of the woodshed club, as it has lost quite a bit of ground VS the dollar lately. So… Unfortunately, the Risk Aversion, continues… UGH!

Well… Global inflation is really gearing up… I’ve talked about this before, and used the fact that the Central Banks around the world had all entered into rate hike cycles… We received more confirmation of that this morning, as German Producer Price inflation jumped to a 24 year high… +6.2%! I think data like this really illustrates the ECB’s need to have already moved rates higher, and to plan for them to go higher still!

Keeping with that theme… Canada announced this morning that Consumer prices had gained 2% in the past year, which doesn’t sound like much, but represents the largest gain in over 3 years… It also wasn’t expected… Recall the Bank of Canada’s Gov. Dodge watering down his statement after the last rate hike? So… Mr. Dodge, welcome back to the rate hike table! The Canadian dollar / loonie has really taken a flyer on this data and has gained about 1/2 cent as I write!

The Canadian dollar / loonie / Belle of the Ball, has finally gotten caught up in the Commodities selling… But, what? Me worry? As I’ve explained before… Historically, commodity bull markets average 17-22 years… We’re only about 5 years into this bull market… Did you see the Jimmy Rogers interview in Barron’s? I really liked this part of the interview…

“The commodity boom, like all bull markets, eventually will end ina crescendo of hysteria. The Public will feel an overwhelming desire to invest in raw materials rather stocks or bonds”

I doubt we’ve entered the early stages of that scenario! And on that note… We’ll head to the Big Finish!

Currencies today: A$ .74, kiwi .6215, C$ .8960, euro 1.2575, sterling 1.8410, Swiss .8060, ISK 74.80, rand 7.0750, krone 6.2775, forint 219.67, zloty 3.2370, koruna 22.66, yen 114.90, baht 38.35, sing 1.5920, INR 45.95, China 8.0029, pesos 11.5170, dollar index 86.36, Silver $10.20, and Gold… $572.40

That’s it for today… Congrats to the Carolina Hurricanes, Stanley Cup champions! The funding on our MarketSafe Gold CD ends today, but not to worry, we’ll run another on for July! And… As I said last week, the timing for this month’s participants is working out very nicely with the price of Gold, much cheaper! Have a great Tuesday!

Chuck Butler
June 20, 2006

The Daily Reckoning