The Loonie Hits 92-Cents!

Good day… Well… Here I am, back in the saddle again. That was one long trip last week, but it’s always good to see current customers and meet new ones!

Friday was a real bummer with regards to currency movements. Negligent at best, would describe any currency movements on Friday. Except that Canadian dollar/loonie (CAD)! (More in a minute…) We did have a country drop the dollar peg over the weekend… But no big shakes. Kuwait dropped their dollar peg, which had been in place since 2003, and replaced it with a basket peg… Sort of like China’s. Of course we have no idea what the basket consists of, but given the fact that imports from Europe have become quite expensive for Kuwait with the euro (EUR) so strong, I would suspect the euro to be a main entry in the basket.

On Friday, I wrote about the Canadian dollar/loonie, and how it was performing quite nicely alongside a stronger than expected economy. A Canadian reader sent along a note to cool my enthusiasm, but just this morning I read a note that a Tech/Charts guy at Goldman Sachs (NYSE:GS) is saying that his charts tell him that the loonie could reach 96-cents! OK… You know me and charts guys… Fundamentals are more important to me. But since I had already talked about the fundamentals on Friday, I thought the charts information would assist here… And oh, by the way… Loonies hit 92-cents this morning!

Also on Friday, we saw the U. of Michigan consumer confidence rise. What? Oh well… I guess people are feeling pretty good about paying over $3 a gallon of gas, eh? I wonder what they will say when it gets to $4 a gallon? Or… When all their savings, that is if they have any, is spent on filling their gas tank. Don’t you wonder just what the heck is going through anyone’s mind that is confident right now? Well… I’m confident… I’m confident that things are going to get a lot worse in the coming months… But then, they don’t ask me!

The Chinese news on Friday, regarding the widening of their currency trading band for the renminbi (CNY) versus the dollar, didn’t have any lasting effect on the Asian currencies, as the Japanese yen (JPY) is back above the 121 handle.

OK… Now, onto this week! There’s no U.S. data today, and we won’t see any data with teeth until Thursday, and then Friday will be a short day, as we head into the Memorial Day weekend.

We will see a little data in the Eurozone this week, with both the German ZEW and IFO surveys out, on Tuesday and Thursday respectively, and both are expected to have risen – which would be a good sign that the strong euro isn’t dampening consumer and business confidence. We’ve already seen that the Eurozone economy wasn’t affected by the VAT (tax) and strong euro… So, I expect these two reports to light a fire under the euro again.

However, as I said above, this will be a shortened week, with “the boys” heading to the Hamptons early on Friday, and with little or no data this week, I doubt we’ll see much movement at all from the currencies. But then… Sometimes we see some of the best moves when the volume is thinned out.

The Bank of England’s minutes will be printed on Wednesday, and should reveal that another rate hike is coming in June. The pound sterling (GBP) needs a little love these days, given its fall from the 2.02 level seen last month. I don’t know that the Bank of England’s minutes will have enough push to kick start pound sterling, but it could be a start.

Then on Thursday, Eurozone Industrial Production will print… And again, should show the Eurozone with good economic strength.

Two presentations and one panel appearance for yours truly last week, and in each one of them, I talked about the commodity bull market trend beginning with the strong economic growth of China and India, and their need of raw materials… And that the bull market trend won’t end until this fundamental reason is corrected/satisfied. Well… I see this morning that I’m not the only one on the soapbox with this thought.

Nomura Securities is preaching from the same soapbox as me! In a recent interview, Nomura’s Ueno said, “Investors should buy commodity currencies such as Canadian and Australian dollars as global economic growth fueled demand for raw materials.” Ueno, who is Nomura’s currency strategist, said, “these currencies look strong, and investors should buy them on dips.”

It’s good to see someone else singing this song. I don’t mind going solo… But it sure sounds better with back up singers, eh?

The performance of Australian dollars (AUD) last week was less than stellar, and has created one of those “dips” that Mr. Ueno talked about.

As I’m writing this morning, I’m seeing the currencies lose ground to the dollar. I don’t see anything on the newswire describing this move… But then it could just be some book adjustments by the New Yorkers as they come into work. We’ll have to keep an eye on this today and see what’s up doc!

Currencies today: A$ .82, kiwi .7285, C$ .9210, euro 1.3450, sterling 1.97, Swiss .8115, ISK 63.40, rand 7, krone 6.0710, SEK 6.8575, forint 185.80, zloty 2.81, koruna 20.96, yen 121.50, baht 33.20, sing 1.5270, HKD 7.82, INR 40.62, China 7.6670, pesos 10.80, dollar index 82.33, Silver $13, and Gold… $660.75

That’s it for today… Good thing Cardinals fans got to celebrate last fall… Because there’s nothing in this team this year to celebrate! OUCH! They are so frustrating to watch! Oh well, you can’t win every year! My little buddy, Alex, has three baseball games this week; let’s hope he doesn’t have any more rainouts! My thoughts go out to our Suzy Q… She’s having some surgery today. Everyone is back today! Thanks to Jennifer for taking care of the trading for me last week… I wonder if the “techies” will figure out a way for me to do trading while on the road someday… I sure hope not! Have a great Monday and week!

Chuck Butler — May 21, 2007

The Daily Reckoning