The US Dollar : Rise and rise?

Changes in the US Dollar against Selected Currencies

Per cent

	Over2014	2015 to date
Brazilian real	12	15
European euro	14	7
Swedish krona	21	5
Indonesian rupiah	2	5
New Zealand dollar	5	4
Mexican peso	13	4
South African rand	10	4
Canadian dollar	9	4
Australian dollar	9	3
UK pound sterling	6	2
Malaysian ringgit	7	2
Thai baht	1	1
Indian rupee	2	1
Chinese renminbi	2	0
Japanese yen	14	0
Singapore dollar	5	0
Philippine peso	1	0
South Korean won	4	–1
New Taiwan dollar	6	–3
Swiss franc	11	–8
TWI	9	2

SOURCE: RESERVE BANK OF AUSTRALIA: Sourced by RBA to: Bloomberg; Board of Governors of the Federal Reserve System

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Is the Canadian dollar turning to be a safe haven?

• The lower oil prices would have net negative impact on  Canada.
• In January Bank of Canada   had  a 25-basis-point reduction in the policy interest rate.
• The economy saw no growth in the first quarter.
• Non-energy exports   have been doing well.
•  Business Outlook Survey shows that capacity constraints are encouraging exporters,  promising new investment.  
•  An annual growth of 1.9 per cent expected this year.  
• Inflation as measured by total CPI today is running at about 1.2 per cent, well below the  2 per cent target.

• Yet the CAD is rising. Is it now the North American Safe haven?

 

CAD-USD
2015-04-27: 1 CAD = 0.8261 USD
Source: Bank of Canada 

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Currency Markets: Beware: Words of Cautionary Wisdom from Glenn Stevens

In a recent speech the Reserve Bank of Australia Governor[1] cautions on following counts:-
(Excerpt Extracts only) 

QUOTE

• Policy rates in the major advanced jurisdictions have been near zero for six years now. In fact, official deposit rates in the euro area and some other European countries are now negative.

• Central bank balance sheets in the three large currency areas have expanded by a total of about US$5½ trillion since 2007, and the ECB and Bank of Japan will add, between them, about another US$2½ trillion to that over the next couple of years.

• Recovering from a financial crisis is an especially long and painful process

• The direct effect of this unprecedented monetary easing has been to lower whole yield curves to extraordinarily low levels, and that process is continuing.

• The most pronounced effects can be seen in Europe. If one were to invest in German government debt for any duration short of nine years, one would be paying the German government to take one’s money. The same can be said for Swiss government debt.

• Even some corporate debt in Europe has traded at negative yields.

• European developments are also affecting long-term interest rates in the United States.

• Fiscal constraints on governments much less binding than they would otherwise have been.

• A striking feature of the global economy, according to World Bank and OECD data, is the low rate of capital investment spending by businesses.
• Listed companies seems to have remained where it has historically been for a long time, even as the return on safe assets has collapsed to be close to zero. This seems to imply that the equity risk premium observed ex post has risen even as the risk-free rate has fallen and by about an offsetting amount. Perhaps this is partly explained by more sense of risk attached to future earnings, and/or a lower expected growth rate of future earnings.

• Whether this is best seen as a temporary increase in risk aversion, a genuine dearth of investment opportunities, evidence of monetary policy “pushing on a string”, a portent of secular stagnation, or just unusually long lags in the effects of policy, will probably be debated for some time yet.
• In capital markets some valuations are stretched, credit spreads are compressed, there has been significant cross-border capital flow and liquidity may be less available than investors are assuming. That raises the risk that a sell-off, were it to occur, could be abrupt.
• What might trigger such an event? The usual trigger people have in mind is a rise in US interest rates.   
• Growth has already weakened in some economies, several of which have been bruised by falling commodity prices. Capital that flowed into emerging markets could flow out again, perhaps when interest rates begin to rise in the United States.
• That would probably occur alongside an appreciating US dollar. So the distribution of credit risk and foreign currency risk will be of considerable importance. One can easily see why investors could become less forgiving of borrowers on a shaky footing, be they corporates or sovereigns.
• A complicating factor here is that the rise in US interest rates looks set to occur while the central banks of Japan and Europe are continuing an aggressive easing of monetary policy via balance sheet measures.
• The combined Japanese and European “QE” will be very substantial.  

UNQUOTE

Author's Comment: Exhortation to buy the US Dollar? 

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[1] Address by Mr Glenn Stevens, Governor of the Reserve Bank of Australia, to the American Australian Association luncheon, hosted by Goldman Sachs, New York City, 21 April 2015.
Source: Reserve Bank of Australia

Ratings' revision of Brazil to Negative?

If there is a rating  Outlook downgrade on Brazil's Long-term foreign and local currency Issuer Default Ratings (IDRs)  which is Negative from Stable this  could be detrimental to the Latin American currencies as Brazil is a leading BRICS member. 

Is Lagarde's warning coming true?

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Latin American Tremors: The 'Real ' Fears

Brazil's economic is in crisis on 4 fronts,

1. political uncertainty and corruption,
2. economic fundamentals being weak;
3. the depiction of the currency as an asset value loser and its fall,
4. and finally the sentiments of weakness in the economy which is self fulfilling.

Brazil's inflation rose  to decade high levels this week. With its currency in virtually a free fall,  it is a vicious cycle at play. The sentimental element is hitting price rises even more adversely. Efforts to tame inflation through the  interest rate will / has already affected towards contraction and recessionary tends. So there are all negatives on the economic front which is compounded by political agitations. From being a large economy, it is moving to vulnerable shocks.

Given the state of affairs, the wealthier locals will exit Brazil currency by the hordes  to hold assets in US Dollars. With the socio economic impact of an underemployed economy, fear will drive foreign investors away too. The locals would be among the first to exit the currency. After all the rioting calms, the Brazilians may try to rebuild. Until the, Brazil is in trouble.

There is  tumult and turmoil in the streets of Rio even as it is time for carnival. 

Wiythout any risk or rsponsibility.