Sunday, April 23, 2006

 

Inflation Woes For Slowing Economies

Bloomberg has some currency reports. "The dollar may weaken on speculation falling home sales and slowing manufacturing growth will prompt the Federal Reserve to raise interest rates just once more this year, a Bloomberg survey showed. Sixty-two percent of the 53 traders, strategists and investors surveyed April 21 from Sydney to New York advised selling the U.S. currency against the euro. Fifty-eight percent forecast the dollar will decline against the yen."

"Lehman Brothers reiterated on April 20 that clients should sell the dollar against the currencies of Norway, Sweden and Switzerland as interest-rate support for the dollar falls. The firm predicts the dollar will drop to $1.25 against the euro and 105 yen this year."

"Net long positions, the difference in the number of wagers by hedge funds and other speculators on an advance in the euro versus a drop, rose to the highest since November 2004. The yen benefited from speculation the Group of Seven industrial nations would increase pressure on China to let its currency gain more rapidly. China is Japan's largest trading partner and a stronger yuan may boost Chinese imports of Japanese goods."

"The Group of Seven called on Asian nations, especially China, to allow their currencies to appreciate, in a statement released late on April 21. Stronger Asian currencies and less reliance on exports for growth can help reduce imbalances that jeopardize a 'strong' economic outlook, the officials said."

"'Cooling housing markets will have a negative impact on consumer spending and employment,' said Yuji Kameoka, a currency analyst and senior economist at a unit of Daiwa Securities Group Inc., Japan's second-largest brokerage. 'The dollar will be weak, as the U.S. economy is expected to slow down from now on.'"

And on New Zealand. "New Zealand's central bank Governor Alan Bollard will probably leave interest rates at a record high this week and signal no change this year because of the risk of inflation accelerating, according to economists. 'The housing market is not slowing sufficiently to comfort the Reserve Bank of New Zealand,' said Cameron Bagrie. 'Ensuring inflation expectations remain anchored will be the Reserve Bank's primary aim, and this will require the talk to remain tough.'"

"Adding to the pressure on prices, New Zealand's dollar is the worst-performing major currency this year, falling 8.2 percent to 62.8 U.S. cents in trading on April 21. Gasoline prices have increased 24 percent since the start of the year to a record NZ$1.68 a liter because of higher crude oil costs and the weaker currency."

"The economy contracted 0.1 percent in the fourth quarter and may have also shrunk in the first quarter, pushing the economy into recession, according to some analysts. 'We raise the prospect here that New Zealand has already fallen into a recession,' Brent Layton, director of the New Zealand Institute of Economic Research Inc., said, citing the institute's survey of trading across 551 businesses which showed 38 percent of companies had lower profits and 47 percent faced higher costs in the first three months of the year."

"The economy is at a 'virtual standstill,' said Brendan O'Donovan, chief economist at Westpac Banking Corp. in Wellington. He expects a rate cut in July."

Comments:
'The Group of Seven called on Asian nations, especially China, to allow their currencies to appreciate, in a statement released late on April 21.'

Presumably, this includes the US. You have to pay attention to the G7 releases, Bank of International Settlement talk, etc. to really know what the central banks and treasury departments are planning. For instance, do you recall any US government official openly saying the asians should 'allow' their currencies to rise against the US$ on April 21st? Yet, that's axactly what they are planning.

Also, if the currencies are 'allowed' to rise, doesn't that suggest something artificial is keeping them where they are?
 
>> "Also, if the currencies are 'allowed' to rise, doesn't that suggest something artificial is keeping them where they are?"

Well in the case of China, clearly its artificial.

In the case of other G7 currencies, (which aren't pegged) I take the term "allowing to appreciate" to mean "reducing purchasing of dollar assets" (as Sweden just did).

..

(OT: Ben is there something that can be done about this enormous font used for comments? Its sort of hard to see where one comment starts and another ends. --sohonyc)
 
so what currencies are good to own?
 
so how much % do you recommend to invest in gold/silver?
 
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