Some Good Alternatives to US Dollars on Bad US Data Prints

Today the G-20 meeting starts in Toronto. I hear they have “locked down the streets,” sure glad they don’t hold one of those boondoggles in my neck of the woods!

I think today we’ll have some “cautionary trading” ahead of the meeting, as traders just don’t know what to expect, other than the billing going into the meeting of an “austerity versus spending” fight between the US and Germany… Right now, that “cautionary trading” has a bias to buy dollars, and yen (JPY)…

The euro (EUR) tried once again yesterday to get past 1.24, and once again it was “denied,” as if the markets were telling the single unit to “get out of my kitchen!”  I really don’t expect much from the euro these days, as it certainly isn’t out of the woods by any stretch of the imagination. But neither is the UK pound (GBP), or the dollar in my mind… But the so-called “safe haven” trades are the cat’s meow right now, so, we’ve got dollar and yen strength… Go figure!

The data recently from the US has been weak, and it’s not just a rogue data print here and there… It’s just about all of them that come out of the data cupboard… Is anyone noticing this besides me? Just this week, we’ve had Existing Home Sales fall -2.2%, New Home Sales fall -33%, Durable Goods fall -1.1%, and Initial Jobless Claims remain above 450,000 per week. Now… Does any of that give you a warm and fuzzy about the US economy? And to take it one step further, does any of that give you a warm and fuzzy about owning dollars?

Sure, the Eurozone is getting hammered right now, but there are other fundamentally sound currencies out there that should be considered as alternatives to dollars, euros, and yen!

For instance… The Canadian dollar/loonie (CAD)… The loonie has hit a rough patch this week, but that’s what investors should be looking for… The dips! One of my fave economists to read is David Rosenberg… Here’s what David said about the loonie yesterday…

From David Rosenberg’s article in yesterday’s Globe and Mail

“The Canadian dollar is ‘the new Swiss franc’ or old German mark. Overweight it, and do likewise to its assets markets, as Canada outperforms the majority of world markets in both risk-on and risk-off periods. But ask questions and pressure the country regardless.”

I would put Aussie dollars (AUD), as long as China is strong, on the list of fundamentally strong currencies, along with Norwegian krone (NOK), and Chinese renminbi (CNY). Those on the secondary list would be New Zealand dollars (NZD), Brazilian real (BRL), and Singapore dollar (SGD)… But that’s just my list, it doesn’t mean these currencies are going to be big winners versus the dollar, euro and yen today, tomorrow or in the next year.. It just means that if the karma was flowing, and the stars were in alignment, and fundamentals ruled the earth, I would want my cash in those currencies…

And gold! And silver! Yes, I’m always talking about how these metals are really “currencies”… So, in that vein, I’ve got to include them here!

Well… The political sideshow in Australia heads into the weekend, as Australia’s first female Prime Minister mulls over the mining tax proposal… Yesterday, she ordered all of the ads for the mining tax removed, which led a lot of people to believe that the tax proposal was dead in the water… But not so, not yet anyway… The Aussie dollar has backed off quite a bit because of this mining tax proposal, so to put it in the rear view mirror would be key to Aussie dollar strength ahead.

Not that I want the form of government that they have in Australia… But, just think for a minute… The former PM Rudd, tried a bonehead move, and they threw him out on his ear… Now for my money, there’s something to admire about that form of government! Imagine… Oh, never mind…

There’s a great story in the Globe and Mail this morning about how the euro is being called all sorts of things right now, but in the end, the euro is still standing, and doing something about their debt problem… While, the US had a beast in its closet (our debt problem) and “maybe the most frightening monster is the greenback.”

I like this snippet from the report… “Some of Europe’s most prominent economists are betting that the euro, bruised and bloodied as it is, will live to fight another day. We believe that the Eurozone will survive this current crisis, a team of six Deutsche Bank economists and strategists said in a June 18 report.”

As I read the report, which was good, I kept thinking… This sounds like something that I’ve read before, hmmm… Oh! It sounded like I wrote the article! It made all the points I’ve made in the past about how the Eurozone has enormous problems, but in the end, they are better than the problems in the US!

Yesterday… US stocks were down, and the euro and other currencies were up… A break of the “throw all the risk assets in the same barrel” trading pattern… But like the couple of times we’ve seen that in the past few months, there’s no follow through… UGH!

The one currency that seems to be the belle of the ball for the past two weeks, the Swiss franc (CHF), reached another record level versus the euro overnight. This move came after a Swiss National Bank (SNB) report that said the risk of deflation has largely disappeared… This is a follow up to their statement after the last rate announcement.

The franc is moving against the euro… But will see traction versus the dollar on the crosses, so the franc has that going for it!

Well… All the hype this week about China comes to the end of the week and the G-20 meeting… US lawmakers and Treasury Secretary might not like how China is going about it, but as of this morning, the renminbi has posted its biggest weekly gain versus the dollar since before the financial meltdown of 2008. So… Almost two years! It’s too early to be sure that China will continue with this “flexibility” displayed this week…

And… Like I said earlier this week, and I said in a video I did yesterday… China would not have made this move if their economy were teetering dangerously toward contraction!

The Japanese yen is back below 90… A strange thing to me… But that’s the way the markets go with yen… It’s thought of as a “safe haven”… They have 0% interest, they have debt that’s about 200% of GDP, and a funk that’s been over their economy for over a decade, but they are thought of as a “safe haven”? Sounds more to me like they would be a safe haven on maybe another planet, but not ours!

Then there was this from The Wall Street Journal, today… “US lawmakers meeting in the wee hours Friday reached a compromise on a bill that will redefine US financial markets and firms for decades.

“The breakthrough came after conference members reached compromises on controversial derivatives language; new limits on banks’ ability to invest in hedge funds and using their capital for trading; the contours of a new consumer protection agency; and the government’s ability to handle the failure of a large financial institution.”

I think I’ll keep my thoughts to myself on all this…

To recap… The bias to buy dollars prevails this morning, with the euro and other currencies falling to the dollar. The Swiss franc is the exception, along with the Chinese renminbi, with both showing small gains versus the dollar. And financial overhaul is in our futures… Be careful of overhauls, there are always unintended consequences…

Chuck Butler
for The Daily Reckoning

The Daily Reckoning