Remember this word: Chermany. It is the new, hip lingo for speaking about China and Germany. What do these two have in common, you may ask? These are the top 2 largest exporters of manufactured goods in the world. As you might expect, this means that they have trade surpluses and thus are in positions of great strength on the world economic scene. Because of this, rightly or wrongly, Chermany feels like they can dictate terms to the rest of the world.
So it should come as no surprise that Germany is leading the charge to obstruct bailout plans to Greece in the drama that has been unfolding. In the latest act, Germany is saying Greece should seek economic aid from the IMF, and not the EU. This undermines previous efforts made to assure the marketplace that this situation is under control. As a result, mild risk aversion is the early-morning theme.
The other side to this new term is China. While I don’t focus on China too often as we can’t trade in their currency, their importance on the world stage cannot be understated. China has “pegged” their currency to the US dollar in an effort to keep it from floating freely in the market like almost every other currency out there. Many would say that this is blatant currency manipulation, and has been one of the major reasons why they have accrued such an economic surplus. Because they have been allowed to operate under these conditions for some time, their ill-gotten wealth has now emboldened them to continue with this policy, regardless of its impact on world economics. The US is now trying to turn up the heat on China, and whether or not anything comes of this remains to be seen. Stay tuned.
In currencies:
Aussie (AUD): The Aussie is lower this morning on risk aversion and on concerns that China will take steps to slow down their economy. Because China is a major importer of Australian raw materials, this could have an impact on the Aussie going forward.
Kiwi (NZD): The Kiwi is higher this morning, bucking risk aversion and quite frankly I’m not sure what’s going on here. They came out with Consumer Confidence figures in the overnight session, but I can’t get a good reading on whether or not those figures were significantly better or not. Regardless, the market seems to like the Kiwi, as it’s up across the board.
Loonie (CAD): The Loonie is slightly higher this morning, and near flat with Yen and the US dollar. They are down-playing concerns of Dollar/Loonie parity as this seems to be a foregone conclusion. There was some concern that the government may try to intervene, however this does not appear to be the case.
Euro (EUR): The Euro is lower today in response to German resistance to the Greek bailout. The rest of the EU thought they had measures in place, only to find out that Germany was not on board. Chancellor Merkel mentioned the other day that “expulsion” should be an option for countries that don’t comply with EU membership stipulations.
Pound (GBP): The Pound is lower this morning as good news that the budget deficit for February was less-than-expected was trumped by disappointing mortgage approvals. In addition, the political rhetoric is starting to heat up which is contributing to the fears of a “hung Parliament”.
Dollar (USD): The Dollar started the morning higher on risk aversion but now looks like it this may reverse after the CPI and initial jobless claims figures came out. As I mentioned yesterday with the PPI figures, today’s CPI figures show lower-than-expected gains which is basically buying time for the Fed to keep rates low for that “extended period” they love so much. As long as the Euro doesn’t implode, I expect risk-taking may occur by the end of the day.
Yen (JPY): Word today is that the measures the BOJ took yesterday in doubling the monetary easing program may have little effect on deflation. As I mentioned yesterday, just because the amount of money available for loan increases, does not mean it will be lent out. If demand decreases, then prices typically fall. We are seeing this exact same situation here in the US housing market.
The world economy is a cycle of “give and take”. What is starting to become apparent is that countries that benefit from low currency value whether through manipulation (China) or through inclusion in a monetary union (Germany) need to be wary that by effectively “cornering” the manufacturing market, they are setting up untenable situations that can only end badly.
It will be interesting to see if the market forces Chermany to take action, or if they try to “take their toys and go home”. Either way, world economic recovery hangs in the balance.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
Tags: account, AUD, Aussie, Australia, buck, cad, China, course, currenc, currencies, currency, currency market, currency trading, dollar, dow, economic, economy, EUR, Euro, fear, fed, free, fx, fxedu, gbp, home, housing market, Il, interest, intervene, jpy, Kiwi, live, loonie, lower, market, Mike Conlon, money, news, nzd, practice, practice account, rate, setting, ssi, time, tip, trade, USD, Yen