The Dollar's Decline is Slowing Down

USD currency value will not likely continue to decline rapidly vs.the Yen nor the Euro nor the Ren Mi Bi from now in Oct 2009 to mid 2010. It is in the best interests of China to keep the USD strong or at least stable/stagnant against other key global currencies as well as the Ren Mi Bi. Why? It is simply because China's central bank holds way too much USD-denominated US-Treasury bonds as reserves, and therefore any further decline in USD value will not be good to China's wealth.

It is also in the best interest of Japan not to let the USD keep falling since the expensive Yen is now taking a toll on Japanese exports/ (Who wants to import and buy Japanese products in the US if the exchange rate is way too high?) Japanese exporters are facing not only an expensive Yen vs. USD exchange rate but also significant competition from Chinese exporters and other Asia Pacific exporters. Furthermore, Japan is the second biggest holder of USD-denominated US-Treasury bonds behind China. Hence, the catastrophic view by many forex forecasters that USD will continue to decline rapidly (after a huge 15% decline so far in 2009) is, in my view, too pessimistic and unwarranted at least between now and mid 2010.

This does not mean USD's value will right away go back up rapidly against the Euro, Yen, Pound, South Korean Won, Australian Dollar, and Swiss Frank, etc. Instead, we foresee that USD currency value will fluctuate within a horizontal range (stagnation or slight decline of 5% decline per year max over the next 10 years but not declining too much further this year and in 2010) vs. other key global currencies which will allow US exporters to take advantage to rejuvenate and grow their export to Asia Pacific, Japan, and the Euro zone. This is why the US trade deficits have been declining almost every month in year 2009 -- a favorable fact to US economic recovery process that investors should be well aware of.

Comments

[Dave Wrixon:]

I think you are making a false assumption. Currency valuations are not politically determined and there is certainly no reliable international co-ordination that will prevent the smart money dashing for the exits to beat the rush.

As for China, in terms of her balance sheet, a low dollar makes her much wealthier in terms of how much it costs to service her imports. The real question is whether the highly damaged US Consumer is worth pursuing as a going concern or whether he is dead in the water. Once it has been established that the he has not got enough dry powder to blow his own diminutive brain out then attention will simply focus elsewhere and the Dollar will tank.

Oct 16 05:37 AM

[DONE_SONZ:]

A pig with lipstick is still a pig.

Oct 16 05:56 AM

[dingding:]

It will take the coordinated efforts of the world's major central banks to alter the path of the USD, and then only temporarily. The only way to strengthen the USD is for the Treasury to stop printing massive amounts of money. And fat chance that will happen anytime soon. There is no exit strategy because it will be too painful for Wall Street and America.

Oct 16 06:28 AM

[Michael Clark:]

Actually, Asian banks did support the dollar last week -- and TYX has rallied this week (30-year Treasury yield). If Asian central banks sell their TBills to support the dollar -- and the Fed isn't able to buy up all the TBills in sight -- then interest rates will rise (and supposedly the dollar will become more attractive). Foreign central banks buying dollars to devalue their own currencies to make their own exports more attractive....is a form of protectionism, a kind of trade war. I'm sure Bernanke doesn't like this. He has had his heel on the neck of interest rates for some time now, hoping to keep them down and hide the insolvency of the American economy. As rates rise, the insolvency secrets start to be exposed even more. Mortgage rates rise. Banks eventually will even have to pay people money to borrow their money (savings accounts). Is there enough money in the world to undermine Ben's plan of making America's debt worthless to its bond holders?

Oct 16 07:34 AM

[Shocksink:]

Certainly China will be holding the bag at the end. China can try to keep the value of the USD high (I don´t think they are that dumb) but it will only help other nations dump the USD ahead of them. In this kind of game the last one to dump will get creamed.

Oct 16 08:34 AM

[User 143167:]

So stupid. As far as I know, the country with its people holding most of the dollar assets are the US. If the dollar becomes worthless, it will be the American people who get hurt most.

Oct 16 10:03 AM

[Macro_Man:]

Look at the chart, DXY is showing a "falling wedge" pattern, which is a reversal pattern and bullish. Short dollar is a crowded trade and woudn't be surprised to see dollar rally sooner or later and enjoy a multi month rally

Oct 16 10:27 AM

[The Economi...:]

There's another problem in that other countries are also printing money in efforts to bring the value of our dollar up. It will work. Just give it time.

Oct 16 12:21 PM

[Swashbuckler:]

"Currency valuations are not politically determined...". Obama ramping up the printing presses to light speed is not political and has no effect on the value of the USD ?


On Oct 16 05:37 AM Dave Wrixon wrote:

> I think you are making a false assumption. Currency valuations are
> not politically determined and there is certainly no reliable international
> co-ordination that will prevent the smart money dashing for the exits
> to beat the rush.
>
> As for China, in terms of her balance sheet, a low dollar makes her
> much wealthier in terms of how much it costs to service her imports.
> The real question is whether the highly damaged US Consumer is worth
> pursuing as a going concern or whether he is dead in the water. Once
> it has been established that the he has not got enough dry powder
> to blow his own diminutive brain out then attention will simply focus
> elsewhere and the Dollar will tank.

Oct 16 12:41 PM

[Dave Wrixon:]

This guy was suggesting that the administration could wish the Dollar higher. That has little lasting effect on the markets. The effect is has depends to what extent the market players believe Obama. His credibility must have run dry. That was my point.

Your point is of course equally valid and implicit in what I was saying. Obama will be ultimately be judged by his actions rather than his words. If you attempt to correlate the two, it does not take long to determine that he is a liar. And how long has he been in Office? It can only get worse!


On Oct 16 12:41 PM Swashbuckler wrote:

> "Currency valuations are not politically determined...". Obama
> ramping up the printing presses to light speed is not political and
> has no effect on the value of the USD ?

Oct 17 03:12 AM

[Michael Clark:]

I follow the UUP and UDN, the US Dollar ETF's, pretty closely. I don't see ANY indication of a trend change in these.

Oct 17 07:53 AM

[adan:]

whatever all these varying and conflicting views mean, and they are definitely interesting -

if the currency we all use here in our own country lets us buy less with it, then a weaker dollar is just another form of inflatlion, robbing us of our earned wealth and store of value -

we need a strong dollar...and, as a country, be strong enough to have that be...

the market, as we're often told when convenient, is not the economy -

the market is not the majority of the people in terms of ownership of total stocks or of wealth / assets within the majority's usable or stored weatlh -

exports are not as important to the majority as import costs -

solutions? less debt, more savings -

universal health care? if we want it, we need to pay for it : end one war : choose life or death -

and really, do we need individual soldiers with hand carried weapons to do what drones or threat of neutron bombs or, god forbid, goodwill negotiations could do?

basically, i'm just saying the solutions are there, but we need the will, and leadership, to do it -

we can, our leaders can...now, we must....

Oct 17 10:39 AM

[Swashbuckler:]

Thanks for the clarification.


On Oct 17 03:12 AM Dave Wrixon wrote:

> This guy was suggesting that the administration could wish the Dollar
> higher. That has little lasting effect on the markets. The effect
> is has depends to what extent the market players believe Obama. His
> credibility must have run dry. That was my point.
>
> Your point is of course equally valid and implicit in what I was
> saying. Obama will be ultimately be judged by his actions rather
> than his words. If you attempt to correlate the two, it does not
> take long to determine that he is a liar. And how long has he been
> in Office? It can only get worse!

Oct 17 11:26 AM

[Albertarocks:]

On Oct 16 10:27 AM Macro_Man wrote:

> Look at the chart, DXY is showing a "falling wedge" pattern, which
> is a reversal pattern and bullish. Short dollar is a crowded trade
> and woudn't be surprised to see dollar rally sooner or later and
> enjoy a multi month rally<

Exactly my interpretation! The chart "count" suggests there's probably going to be a dollar rally very soon that's going to catch a lot of people off guard, and I think it could even be rather explosive. That would set off a bout of deflation that would coincide with a serious tanking in the stock markets any day now that's long overdue. It begs the question whether or not the banksters are going to once again swoop in like Superman with a bar of kryptonite up his ass and try to save the markets one more time. I think not! Not this time.

The ETF's that track the dollar are of course tracking the dollar index pretty much bang on and so far they're still pointing down... but with an extreme increase in volume as of late. Volume proceeds price and in my view, this volume thing combined with wave count suggests the change in trend is imminent and will likely be very sharp and abrupt.

Oct 17 12:36 PM