usd exch rate
i have maintained in my past updates that usd will not weaken significantly which had been true, but i changed my mind recently on the outlook of usd, it will go south.
reasons?
- recent movements of many currencies point to a further weakening of usd of 10% plus within a two year or less time frame. the most conspicuous is the aud which formed a round bottom. if it breaks out of 0.78 with follow through, it will hit 0.84.
- the us m3 money supply is expanding quickly which should not be the case with 17 rate hikes, might be the us govt is printing more money.
- recent merger & acquisitions volume also suggests there is so much money around probably due to 2 above. the m&a volume is at par with the volume during the era of internet bubbles.
- stalled [or even -ve] growth in household net worth due to weakening of the housing market does a lot of damage even when stock prices are heading north. most households own a house but not necessarily stocks, the housing market has a stronger effect on consumer demand than the stock market.
- greenspan evils [23 aug 04 update] - he singlehandedly created the housing bubble which is now leading to a dilemma - control inflation and the bubble bursts which hurts us consumer demand; let inflation off, then usd exch rate dives. it is more likely that the fed has already choosen the later option. us is heading towards a third world mentality, they tried to devalue their currencies to get out of a hole they digged themselves into.
note [for 2] - us federal reserve is not releasing figures on m3 http://www.federalreserve.gov/releases/h6/discm3.htm citing it is not relevant to present monetary policy. recent estimates by finance pros indicate it is expanding at 9%.
goto saxobank.com for exch rates, choose weekly time scale.
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