On Wednesday February 13th, a group of G20 Central Bankers and Finance Ministers will hold a working meeting in Moscow. Included in this group will be experts from the IMF, the World Bank, Bank for International Settlements and other groups.
Those in attendance at these meetings will:
"discuss a wide range of issues including further improvement the efficiency and legitimacy of the IMF governance structure, work on strengthening the IMF surveillance, public debt management, Regional Financial Arrangement development and co-operation with the IMF and others."
Does this not sound like there is an agenda here, to expand the power and finances of the IMF and other regional bodies that will usurp the powers and monies from the elected local governments? What could we replace the word surveillance with? Perhaps spying would be more appropriate, and co-operation means you do what the IMF says, or else the IMF will not come to your rescue, your interest rates on sovereign debt will climb, and the Central Bankers will shun your paper.
Whatever is on the agenda is important, because they specifically took the topic "currency wars" off the table. Initially spokespeople with the G7 said that it was appropriate for individual countries to take actions with the money supply when it was intended to stimulate an under-achieving economy. If in the process, the countries' currency weakens, this is acceptable.
This was a simplistic dismissal of the currency war threat caused weakness in the yen. Since then, other voices from the G7 or the G20 have made conflicting comments, causing a sharp rally in the yen. And other opinions and comments are sure to follow, but it sounds like the G20 has other things to do at these meetings rather than debate currency devaluations.
Should this be the case, the yen (FXY USDJPY) should remain on the defensive after the meetings are over. We did observe in the latest COT Report that traders reduced some of their shorts in the last reporting period.
We have included charts of the USD, the euro, and the Australian dollar, so you can pick your favorite long.
In Washington this evening, President Obama will deliver his State of the Union speech. Typically,the first year of a president's four-year term is when he has the best chance of pushing controversial legislation. In anticipation of the speech, there are rumors swirling.
Among them is a rumor involving the Keystone pipeline, which would run from the Alberta oil sands to Cushing Oklahoma, and from there to the Gulf of Mexico. Despite the fact there are thousands of miles of pipelines crossing the U.S., opposition to this pipeline has been a cause celeb for the environmentalist and limousine liberals on both coasts. Permission to build the Keystone will infuriate this group.
To appease this group of his supporters, it is rumored Obama will propose a carbon tax, which would be authorized by executive order and administered by the Environmental Protection Agency. A new energy tax that transfers money from the interior of the country to Washington would never make it through Congress. Washington desperately needs more tax revenue, and Canada, likewise, is desperate to get the pipeline.
According to the Financial Post yesterday:
"Ottawa and Alberta seem ready for anything to get Keystone approved. The level of appeasement if not desperation in the language of Canadian politicians rises by the day. Natural Resources Minister Joe Oliver -- heading to Washington to plead for Keystone's approval -- says Canada is moving in "lockstep" with Washington on environmental issues. Trade Minister John Baird said Ottawa is "like-minded" on environmental objectives. Mr. Obama and Mr. Harper, he said, have both set a 17% reduction in greenhouse gas emissions."
We are not privy to the contents in the speech. Some rumors claim the carbon tax should be for all of North America, Canada included. Dictating policy changes for Canada seems abrasive, and might just cause the pipeline to be constructed on Canada's west coast.
Contrarily, should the proposals for the pipeline and the tax seem reasonable for Canada, this might prove bullish for the loonie, at least in the short term. We will be watching the market action, hopeful that we get a rally to the .9900 to .9940 level to buy the (USDCAD FXC) and sell the Canadian.