In The Summertime

Good day… And a Happy First Day of Summer, which officially begins this morning at 7:26 a.m. CST (or so I’m told by the radio announcer this morning!) I love the summertime, and hope that this summer brings about more joy for currency holders than last year, when we had the “No” vote on the European Union Constitution, and other problems to deal with!

No… This year, we hope to be basking in the warm sun of a currency rally… Yes, the spring time was a good stepping stone to that currency rally, but that’s peanuts to what I believe is in the cards as we draw nearer and nearer to the end of the Fed rate hikes…

The currencies, as I expected, traded in a range again yesterday with little or no movement at all… But then, the news hit the streets that North Korea was intending to test-fire a ballistic missile, disregarding the pleas from the U.S., S. Korea, Japan, and even China not to undertake such a launch. Gold began to move higher, as one would fully expect it to, and the dollar began to move lower…

The euro kicked up some dust and moved past the 1.26 handle once again, and Swiss francs followed with their own strong move. The dollar remained lower through the Asian and early European sessions too! So… Now we’ve got another geo-political problem in the world…. UGH! But ask a person on the street and they’ll tell you they are “confident”! Not me, but as I always say… Those Consumer Confidence surveys don’t call me!

The Fed Reserve’s FOMC meeting to discuss rates is still more than a week away, and again there is a thought going around the rosy that all these rate hikes are going to slow economic growth… Well… I have to ask those that are just now coming around to this way of thinking… Hey! Geniuses! What did you think was going to happen? Oh, well… I shake my head and wonder sometimes… No wait, I shake my head and wonder most of the time!

This thought process circling the bases right now has also helped the dollar lower… However, I just don’t see the currencies moving in either direction until we see the color of the FOMC next Thursday… I believe that a 25 BPS rate hike has already been priced into the markets… But what will Big Ben Bernanke have to say afterward? That’s what everyone will be waiting for… So… We have over a week to wait, with lots of jawboning on both sides of the question, is this the last rate hike or not?

The Chinese renminbi is back below the 8 figure again overnight… Yesterday, I talked about how China might be looking to use a stronger renminbi to help fight inflation, and last night China set the reference rate for the renminbi higher… Hmmm… Of course I would love to see the renminbi stop these false dawn moves below 8, and remain below 8, heading to my call for the currency at 7.50…

Whenever the Chinese renminbi does move stronger VS the dollar, the other Asian currencies see that as an opportunity to see their currency move stronger VS the dollar too. Take the strong move by Japanese yen the previous night on Fukui’s statement, and we could very well be looking at the first steps of an Asian currency rally… Obviously, we need to see some follow through, but as I’ve been saying for a couple of years now… The next big leg down in the dollar will come from Asian currency strength… So, it’s about time it came to fruition, eh?

While I’m in Asia… Thailand, which has been one of my fave’s this past year, posted their biggest trade deficit in almost a year in May… Exports are soaring in Thailand, unfortunately, oil imports and the high price of oil, are wiping out all the good the exports are doing for the trade balance. The Current Account Deficit turned red just last year to the tune of $3.71 Billion… Nothing to get too upset with… And with tourism on the rise, and exports soaring… I’m going to remain a baht watcher… I’m a baht watcher, I’m a baht watcher, here comes one now…

Yesterday, I told you about the rise of Consumer inflation in Canada, and how that probably will bring the Bank of Canada back to the rate hike table… There’s one thing to think about here, and it is the same in China… The Bank of Canada thought they could back away from the rate hike table, and let the strong loonie fight inflation by itself… But that’s just not good enough! You need to have both… A strong currency and higher interest rates… So, welcome back Kotter! Welcome back to the rate hike table… We’ll see you in 3 weeks when the Bank of Canada next meets!

Over in Europe… The Swiss National Bank’s (SNB) Gov. Roth told interviewers that the SNB has more rate hike arrows in its quiver… I like this type of talk from Central Bank Governors that then follow through… There’s no talk coming out of both sides of the mouth… There’s no hedging the talk… It’s straight and simple…

And in the U.K…. The minutes of the last Bank of England’s Monetary Policy Committee (MPC) revealed that one member did indeed vote for a rate hike at the last meeting! He must be the one that reads the Pfennig! The MPC is preparing to hike rates it’s just a question of when… Obviously, not this month! But one “guy” had his eye on the ball!

I gave an interview to a SmartMoney writer on Monday… He had no idea that EverBank had currency products that allowed individual investors the ability to diversify their portfolios using bank FDIC deposit products… By the end of the interview, I think he was ready to open an account! This just goes to show me that there are still great masses of people out there that don’t have any idea that this is available… Hmmm… How do I reach them? That’s the question!

Currencies today: A$ .7375, kiwi .6190, C$ .8990, euro 1.2630, sterling 1.8420, Swiss .81, ISK 74.55, rand 7.17, krone 6.2650, forint 220.79, zloty 3.24, koruna 22.6140, yen 114.80, baht 38.35, sing 1.5920, INR 45.96, China 7.9970, pesos 11.4770, dollar index 85.99, Silver $10.30, and Gold… $575.76

That’s it for today… I know my little buddy is bumming today, as his favorite team, the Dallas Mavericks lost the NBA Championship to the Miami Heat last night… (long after I was asleep!) Chris Gaffney is on vacation this week, so I don’t think we’ll get to have our usual “Wired Wednesday” but you never know, someone might pick up the ball! And as Popeye used to say… “How embarassking” The World Champion White Sox spanked my beloved Cardinals badly last night… UGH! Have a great Wednesday and first day of summer!

Chuck Butler
June 21, 2006

The Daily Reckoning