How do you know when Treasury Secretary Geithner is lying? His lips are moving. Ba dum duh! Seriously, Geithner “vowed” on Monday that the US would not devalue the Dollar to gain an exporting advantage. I’m guessing he is playing the semantics game here, and is disingenuous at best.
This has caused a bit of dollar strength this morning, as has the fact that China raised its benchmark interest rate to try to deal with inflation. As China has led the global economic recovery, fear of an economic slowdown could induce further risk-aversion.
However, all of this comes ahead of this weekend’s G-20 meeting, where any manipulation of a country’s currency would be met with consternation. So luckily for the US contingent, they can point to Geithner’s “strong dollar” stance this weekend and I’m sure Bernanke and the rest of his Fed lackeys will play along. So I expect to see continued dollar strength going in to this weekend, with the Dollar selling to continue the following week after the US makes it through the G-20 unscathed. Bunch of cowards if you ask me.
The Aussie is weaker against the Dollar as the RBA minutes showed that the central bank is looking to take a balanced approach to rate hikes. The Pound is weaker ahead of tomorrow’s release of the BOE minutes.
Just to the north, the Bank of Canada kept rates unchanged as the global economic recovery may be faltering.
In the forex market:
Aussie (AUD): The Aussie is lower as the RBA minutes showed that the decision to maintain rates at the last meeting was “finely balanced” as risks to global growth and a rising currency value helped ease inflation concerns.
Kiwi (NZD): The Kiwi is also lower on risk aversion as the rate hike in China may potentially slow down their economy thereby reducing their demand for NZ commodities. If the Chinese economy cools, then both Australia and New Zealand will be affected.
Loonie (CAD): The Loonie is weaker as the Bank of Canada left rates unchanged at 1%, as the potential global economic slowdown outweighs any potential inflation Canada may be seeing. (Click chart to enlarge)
Euro (EUR): The ZEW economic sentiment figures came in mixed as Euro zone economic sentiment came in better than expected, but German sentiment came in slightly worse than expected. The Euro zone current situation figures came in better than expected as well. This has had little effect on the Euro, and highlights the disparity between Germany and the rest of the EU. However, it is still lower vs. Dollar and Yen.
Pound (GBP): The Pound is lower ahead of tomorrow’s BOE rate policy meeting minutes. There is a lot of uncertainty surrounding this release, as there are now 3 competing opinions over what, if anything the BOE should do. Further easing could stoke inflation and not help the economy, doing nothing could cause the economy to drift lower as spending cuts kick in, and a raise of rates could reduce inflation but slow growth. This will be an interesting report to say the least. (Click chart to enlarge)
Dollar (USD): The Dollar is showing strength today as Geithner’s comments and Bernanke and his lackeys are due to speak later today. They are backing away from the QE2 talk ahead of the G-20 meeting which should allow the Dollar to appreciate this week, but I could see a return to Dollar weakness next week. US housing starts came in better than expected.
Yen (JPY): The Yen gets some breathing room vs. USD as Japanese stocks were higher overnight, and the fact that the US is backing away from the QE2 rhetoric. This could just be setting up for a higher jumping off point for the next FOMC meeting.
As I wrote yesterday, this week is all about Fedspeak and government rhetoric and trying to avoid be labeled a currency manipulator. The global system is so disjointed that it’s really sad to see a bunch of grown men who are supposedly world leaders playing a child’s game of “I know you are but what am I”.
Nevertheless, it is important to realize that once the talk is gone, the “proof is in the pudding”. So continue to watch not only for signs of economic strength around the globe, but also for weakness.
There are still good global growth stories out there; they just might not be taking place in your home country. And that folks is what makes the currency market unique. You can buy the currencies of countries that are doing well, and sell the currencies of those countries that aren’t.
So what are you waiting for? Get involved today!
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