8. November 2009 by Dan Walkow, CFA, CMT.

A ballooning U.S. budget deficit and escalating government debt has made the dollar currency non grata in many quarters once again. An index that measures the greenback’s value against a basket of major currencies, including the euro and yen, has fallen about 15% from a three-year high reached in March and is now hovering near a 14-month low. Economists and analysts expect the dollar to lose a lot more ground.

Harvard historian Niall Ferguson says the dollar could slide by as much as 20% on a trade-weighted basis over the next 12 months. The process may be protracted, he argues, but the dollar is dying. In 10 years’ time, he said in October, “it won’t be such a dollar-dominated world. I’m sure of that.”

Read more: http://www.time.com/time/business/article/0,8599,1935868,00.html#ixzz0WEaqkNNU

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25. October 2009 by Dan Walkow, CFA, CMT.

Former President of France,  Charles de Gaulle famously resented America’s paramount position in the global economy in the 1960s. He complained that the US enjoyed exorbitant privileges and deficit without shedding tears created by dollars, and that it plundered resources and factories of other countries with its worthless waste paper.

A view from China, to read the whole thing go here.

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13. October 2009 by Dan Walkow, CFA, CMT.

Three days after the Reserve Bank of Australia unexpectedly raised interest rates, the monetary policy committee of South Korea’s central bank held a meeting. The Oct. 9 gathering was closely followed because the Australian move raised expectations that other central banks would also tighten. Korea held the line. Citing “uncertainty as to the economic growth path,” the Bank of Korea kept interest rates at an ultra-low 2%, the result of six rate cuts over the past year.

Still, it is only a matter of time before Korea follows Australia’s lead. So will the People’s Bank of China, the Reserve Bank of India, the Reserve Bank of New Zealand, the Monetary Authority of Singapore — and perhaps several months down the road, the European Central Bank. As economies recover and jobless rates fall, most policymakers will raise interest rates to head off the inflation that could result from the massive fiscal stimulus spending launched by governments around the world to combat the global recession.

Most will raise rates — but one very conspicuous central bank is unlikely to follow suit. With the U.S. jobless rate at 9.8% and still rising, the U.S. Federal Reserve cannot risk a rate increase anytime soon, despite the danger of inflation. Read full story here.

Interest rate increases around the world will only increase pressure on the downward move in the USD.

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7. September 2009 by Dan Walkow, CFA, CMT.

(Click on the charts to enlarge, charts courtesy of Stockcharts.com)

Is the Canadian dollar ready to resume it’s advance? You can see that the leading “commodity currencies” are the Australian dollar, the South African Rand and the Canadian dollar. Both the Rand and the Aussie dollar “have broken out” and it would appear the Canadian dollar is ready to do the same.

Lots of talk this weekend on a ” new world reserve currency” such as the IMF SDRs discussed here a post or two ago. I suspect this possible currency relignment talk is pushing things along currency-wise and in particular the possiblity of a reduced role of the USD.

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5. September 2009 by Dan Walkow, CFA, CMT.

Most people have never heard of the International Monetary Fund (IMF) never mind what Special Drawing Rights (SDRs) are. The IMF is like an international bank where various countries “own” or contribute funds in proportion to their GDP. Sort of.

SDRs are the “currency of the IMF”. There is renewed interest in the SDRs, particularly by the BRIC countries who want to become less reliant on the US dollar as a reserve currency.

At the G20 meeting this weekend there is a “bun-fight” on realigning the proportionate weightings of each country’s SDR allocation relative to their GDP.

As it stands today Europe is over-weighted and the BRICs are under-weighted. The politics are hot and heavy.

Why is this worth paying attention to? It impacts investment policy as it has a direct impact on investing in BRIC securities as well as protecting oneself against a continued devaluation of the USD.

Over time, if the BRICs continue to grow the SDRs must be realigned, but in the short term it is all politics.

Read more at the WSJ.

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20. August 2009 by Dan Walkow, CFA, CMT.

 It is a good time to short the U.S. dollar versus the Canadian currency, given its ties to oil prices that have moved back toward the top of a recent trading range, Goldman Sachs said on Thursday.”This U.S. dollar view could have been expressed against a number of currencies but the Canadian dollar looks particularly attractive given its strong exposure to oil,” Goldman Sachs wrote in a note. “Combined with our underlying bullish oil view linked to supply fundamentals, the risks are likely skewed towards CAD outperformance.”

Read full story here.

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17. July 2009 by Dan Walkow, CFA, CMT.

The Economist’s Big Mac index, a lighthearted guide to valuing currencies, provides some clues. It is based on the theory of purchasing-power parity (PPP), which says that exchange rates should equalise the price of a basket of goods in each country. In place of a range of products we use just one item, a Big Mac hamburger, which is sold worldwide. The exchange rate that leaves a Big Mac costing the same in dollars everywhere is our fair-value benchmark.

On July 13th, according to the Big Mac Index the Canadian dollar was undervalued by about 6% relative to the US dollar but with the run up in the Canadian dollar over the past fews days we are now at close to fair value.

Noteworthy is the fact that according to the Big Mac Index China is undervalued by 49%.

See the Big Mac Index for most countries around the world here.

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15. July 2009 by Dan Walkow, CFA, CMT.

We are witnessing a seismic shift in the world financial markets that is coming at us faster than anyone thought was possible. It is is rise of the Chinese renminbi as a world reserve currency.

According to HSBC China will overtake Japan and Germany as the world’s second largest economy in the next few years.

Why should you care? Right now about 65% of world currency reserves are held in US dollars. If China is successful in becoming a world reserve currency, which I believe is a done deal, then the demand for US dollars is going to decline and not just a little bit.

From an investment viewpoint, it is absolutely critical that diversification of investment assets away from total US dollar exposure is a must do. Simple logic dictates that a rise in the use of the renminbi as a world reserve currency ensures further US dollar devaluation.

American investors who wish to preserve their standard of living and prevent a debasement of their wealth need to take action asap. There are many investment strategies that can be used to mitigate a US dollar devaluation both on the fixed income and the equity markets. As an American investor have a plan and execute as the Chinese “freight train” is moving along quickly and delays could be costly.

For more go here.

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10. June 2009 by Dan Walkow, CFA, CMT.

Russia is the third largest creditor to the United States and holds about 400 billion in US dollar Treasuries. They announced today that they will be reducing their USD dollar holdings in favour of bonds issued by the International Monetary Fund (IMF).

This follows on China, who last month indicated that they would be increasing their IMF allocations.

If major creditors to the United States are reducing their USD holdings implying that we will see further depreciation in the value of the USD then maybe you should too!

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6. March 2009 by Dan Walkow, CFA, CMT.

Now here is a crowded opinion. Pundits abound about the demise of the US dollar on the basis so much money is being printed that the US dollar has to decline. So why does the dollar seem to be going up (See our chart on our March 2 post below)? For now the dollar is a pillar of strength and could continue for some time.

Great explanation by Howard Gold on CBS Marketwatch. Read it here

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