Continuing the trend of looking at the weakening US dollar, we’ve got a couple of new articles.
First, an analysis post from Kitco, a gold bullion dealer, looks at the potential effects of Japan and China cutting back on, or dropping their support for the US dollar.
For a while now the US has been pressuring China to let its currency float, a move that is widely anticipated to lead to a stronger renminbi against the dollar. This must rank as one of the dumbest things I have seen the US do in recent times.
Calling for a stronger renminbi is, by definition, calling for a weaker US dollar. However, US Treasury Secretary John Snow said in London, just this week, that “Nobody has ever devalued their way to prosperity.” I guess the US Administration feels that the US is already so prosperous that it could afford to pursue a weaker dollar, even though its official policy is one of a strong dollar. If that sentence confuses you, don’t worry, it seems to confuse John Snow as well.
There is some analysis of bullion prices in there as well, of course, which seems to suggest that if you have a bunch of US dollars sitting around, now might not be a bad time to move them into gold. (Of course, I’d feel better about the advice to “buy gold” if it weren’t coming from a bullion dealer.)
Our second piece is a bit of Australian currency analysis, also reacting to the moves by China and Japa. The analysis here is also of interest to Canadians since everything that applies to the AU dollar applies to ours, but moreso.
ALL the ingredients are now in place for an orderly fall in the US dollar of 5 to 10 per cent over the next three months, which would take our currency to between US82c and US85c.
Nothing is certain in currency markets, but it is becoming increasingly apparent to the Chinese and Japanese that if they continue to prop up the US dollar to enable Americans to buy their goods, it will have a dangerous side-effect – growing US protectionist forces.
When oil hit $US50 a barrel yesterday and the Russian Central Bank declared it was switching some of its reserves from US dollars to euros, it went a long way to locking in the US dollar fall over the medium term.
Also worth special attention is this bit:
In fact, the world will be a more stable place for this correction. Currently 80 per cent of world savings are required to maintain US spending.
If the US dollar does not fall, that proportion will rise to fund US growth and additional oil bills.
Third up is another Australian article with a wrap-up on recent trading.
The global selling of the US dollar is showing signs of gathering pace.
Warnings from policymakers in Europe and Japan have done little to hold back the tide.
But there has been no clear sign of direct market intervention from central banks despite the need for it being discussed in European economic circles.
The American greenback has again been to multi-year lows against a wide range of other currencies.
The euro has been to yet another all-time high, this time reaching 1.3249.
The more I read about this stuff the more I need some good macroeconomics background information. Can anyone point me to a site, or recommand a book slightly less weighty than a serious textbook?
Oh, and in the credit where credit is due category, these links were pre-harvested for me by cunning New Medievalists in a thread I started over there on US currency issues.
