Only One Direction for the Dollar...
Chris Gaffney
"U.S. Treasury Secretary, John Snow, said yesterday that China is "intent" on changing the peg. Conspiracy theorists are looking at the timing of the phone conversation between the two presidents and the U.S. election. 'Who knows what type of deal may has been made?'"
- McTeer tells it like it is
- Loonies stay strong
- ECB keeps rates unchanged
- Aussie dollar up
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And Now...Today's Pfennig!
Only One Direction for the Dollar...
Good day... Friday is finally here, and with it comes the jobs data everyone has been waiting on. The dollar has sold off overnight on concerns that the data won't be as strong as expected. Yesterday's weekly numbers came in slightly better with initial jobless claims at 335,000 compared to last weeks 372,000. Consumer credit in the United States was also reported and came in at -2.4 billion, dramatically lower than last months 11.2 billion.
But these numbers really had no effect on the markets, as all eyes were focused on this morning's data. Economists expect the reports to show a gain of 148k jobs during the month of September, the most in four months. This seems like a stretch to me after all of the layoffs I have seen announced lately (ATT cut its workforce by 20% yesterday!) but it is the last numbers the administration is going to get to announce before the election. I am calling for the number to disappoint and be closer to 110k, but this lower number will be shrugged off, due to the hurricanes that hit last month.
The Federal Reserve Bank of Dallas' president, Robert McTeer, caused the dollar to weaken against the euro and yen with a speech that focused on the current account deficit. While overseas investors now "finance" the current account gap, "theoretically someday that process will come to an end, the flows will turn against us, and there will be a crisis that will result in rapidly rising interest rates and a rapidly depreciating dollar," McTeer said in a speech in New York.
Sounding like a Daily Pfennig reader, he stated, "Over time, there is only one direction for the dollar to go - lower." He is the third Fed official in a month to link the dollar and the deficit. Readers of the Pfenning have been hearing about these twin deficits for over a year now, but it looks like they are coming back, front and center.
Our trading partners at Deutsche Bank, #2 in the world of currency trading, forecasts the dollarto fall to $1.27 by year-end. "An inevitable adjustment of the U.S. current account deficit will entail significant dollar weakness," the bank's currency strategy team wrote in a monthly report today.
The Canadian dollar, or loonie, rose for a fourth day against the American dollar after a report showed the economy added 43,200 jobs last month, boosting speculation that the central bank will lift its interest-rate target at least once more this year. With the growth in oil, gold, and copper revenues, and gains in employment, Canada is enjoying a more balanced growth than the United States, which should spur it currency to further gains against the U.S. dollar.
Some central bankers are starting to grumble about the speed of increase for the loonie; and therefore, may argue against further rate hikes this year, but I believe rates will be raised at least one more time and the loonie will continue to rise above .80.
As was expected, the European Central Bank kept its benchmark lending rate at a six-decade low of two percent, on concerns that record oil costs and rising unemployment are tempering the pace of economic growth. Data from Germany, which followed the ECB's decision, showed that German Industrial Production declined for a second month in three, and exports also fell. Oil prices are being blamed for the slowdown in growth, which should keep inflationary pressures at bay. Despite the lower than expected data, the euro climbed vs. the U.S. dollar, as it continues to be the offset currency to investors looking to sell the U.S. dollar.
As Chuck pointed out to me yesterday, Aussie jobs jumped 63.5k in September, double the expected number. We are convinced that a rate hike is on the horizon here. This good jobs data should also boost chances that the Prime Minister, John Howard, will be reelected tomorrow. The currency was the best performer yesterday, with second place going to its kissing cousin, the kiwi. New Zealand's dollar gained on the good news for Australia and strength of the commodity markets. We are looking for a further gain in interest rates on October 28th.
Rumors of a Chinese revaluation have caused the yen to finally start moving up vs. the U.S. dollar. Even though Chinese officials had denied any plans for a near-term revaluation, reports that President Bush had discussed the matter with Chinese President Hu Jintao only fueled speculation that a move is imminent. U.S. Treasury Secretary, John Snow, said yesterday that China is "intent" on changing the peg. Conspiracy theorists are looking at the timing of the phone conversation between the two presidents and the U.S. election. "Who knows what type of deal may has been made?" We will just have to wait and see...
Currencies today: A$ .7273, kiwi .6772, C$ .7963, euro 1.2315, sterling 1.7869, Swiss .7932, rand 6.6275, krone 6.73, forint 199.74, zloty 3.51, koruna 25.46, yen 110.46, baht 41.33, mxn 11.25, and gold... $417.58
That's it for today, this just in: The US ADDED JUST 96k JOBS. LOOK FOR A STRONG DAY FOR THE CURRENCIES! Just in time for Chuck's return from VT. Have a great weekend!
Chris Gaffney is Vice President of EverBank World Markets and the author of the "Daily Pfennig" when Chuck goes on vacation.
Mr. Gaffney has been involved in investment services since 1987 and is responsible for customer service and sales of currency related products for EverBank World Markets. "A Pfennig for Your Thoughts" is delivered via email to tens of thousands of market watchers globally to help traders stay on top of the economic, currency, and market happenings. The "Daily Pfennig" (as it is more commonly called today) has become a popular resource for currency investors and traders alike over the past 11 years (sign up here) Mr. Gaffney is a Chartered Financial Analyst and also holds degrees in Accounting and Finance from Washington University in St. Louis.
This article was originally published in The Daily Reckoning (www.dailyreckoning.com).
October 11, 2004
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