The Dollar Is Still Strong in Many Places

Let me start this morning by wishing all those “Jason” fans a very happy Friday the 13th! Interestingly there a number of analogies that can be drawn from that “horror franchise” as Wikipedia calls it and the current economic environment and yes, after all is said and done, Jason lives.

The tension in these movies comes as one by one the unfortunates are eliminated and the situation gets increasingly dire for the soon to be dead. It is a bit like that in the FX markets at the moment with news that Thailand, South Korea, Russia and the Philippines spent much of the week trying to prop up their respective currencies by purchasing dollars. This turned out to be about as successful as the survival chances of Jason’s next victim as the Buck ducked to 15-month lows during the process.

As a comic aside or some gallows humor if you prefer, the market only reacted when the story hit the wires yesterday so the news of the action seemed to have more of an affect than the action itself which should provide a pretty good clue as to its staying power. That’s right, just about as long as Jason’s next victim! I know, its Friday, but I can tell you’re getting it.

The prospect for success was possibly put forth best by Korn Chatikavanij, Thailand’s finance minister, when he said this week: “I’m convinced that in the long term the dollar is more likely than not to decline in value, so we’re building up assets that are declining in value over time.”

Besides the actual interventions, there has been a fair amount of rhetoric thrown at the issue. Tim Geithner had a piece on the Op/Ed pages of the WSJ yesterday published in both the Asian and U.S. editions talking up Uncle Sam’s strong dollar policy.

Jawboning is not new in the currency markets however, FX traders being the plucky lot that they are, value actions much more than words. In this regard the current situation harkens back to 1971 when John Connelly, then Secretary of the Treasury for “Tricky Dick” Nixon said: “It may be our currency, but it’s your problem,” when the U.S. unhinged the greenback from the gold brick.

All is not lost however for as tough as it has been for our fiat on the world stage, there are still many places where the dollar dominates. “The U.S. dollar is losing value, but not here in Vietnam,” was how Vu Manh Quynh put it. VMQ is an auto trader in Hanoi’s Old Quarter who also does a bit of money changing on the side. “Vietnamese people still keep dollars and gold,” he went on to say.

“Having dollars is like a barricade” is how Arnaldo Morales, a taxi driver in Venezuela who also happens to run a cash forex business from his front seat, put it. AM has been at it since 2003 so when he says, “The dollar will always be strong,” he could be worth listening to.

“The dollar still has dominance in Nigeria,” too. “The exchange rate might not be good, but you know what you’re dealing with and that you can use the dollar anywhere you go. I don’t see any real shift towards the pound or the euro.” Those words come from Alhaji Farouk Suleman, the president of the Association of Bureaux de Change Operators of Nigeria.

Getting ground to a pulp among the G-20 but still big in the back alleys. Got to be a slasher film in there somewhere.

The CDS for the Greenback closed last night at 25bps. That is the highest level since September 8th and topped interim highs of 23bps on 10/29 and 24bps on 11/2. The high of 27bps touched on 9/3 should provide resistance after which 29bps on 8/19 and 31bps on 7/29 are points to watch.

Enjoy the weekend.