US Dollar - why up?

[delinky]

Hi everyone - I also asked this question in the Newbies corner but am not sure that was the right section, so if you don't mind I would like your opinion here. Can someone please give me some insight as to why the US dollar would rally in the short to medium term. I can't think of any logical reason in the current climate as to why some of the commentators on CNBC predict this and would love someone to provide a viewpoint. I would have thought with all this printing of money that the dollar would be toast. What would be the logics behind the dollar rallying?

[dumbass]

The USD is still viewed as the safest currency so when world equity markets are declining and risk appetite is low money flows into US treasuries and by default the US dollar strengthens because it is being bought.

So the situation where the dollar will strengthen will most likely happen when the equity market weakens which in my personal view is about to happen.

[delinky]

Great explanation. However, how can it be a safe haven when surely to the people it is clear that printing off all this money can only undermine the value of the US dollar. This is where I am struggling. Not all countries are printing money (as yet), so why would one consider the dollar safer?

[AMR]

Conspiracy theorists would point to the shadow Bretton woods agreement.

In short, they're high because China and Russia have to buy USDs....and they have to buy even more to protect the value of the stuff they have already bought.

[dumbass]

Great explanation. However, how can it be a safe haven when surely to the people it is clear that printing off all this money can only undermine the value of the US dollar. This is where I am struggling. Not all countries are printing money (as yet), so why would one consider the dollar safer?

There are many aspects to fund flows and value is not always the prime consideration when seeking a safe haven. Other factors come into play especially when risk is high chiefly liquidity and low volatilty and usually the usd satisfies those criteria.

[Hoop]

Hi everyone - I also asked this question in the Newbies corner but am not sure that was the right section, so if you don't mind I would like your opinion here. Can someone please give me some insight as to why the US dollar would rally in the short to medium term. I can't think of any logical reason in the current climate as to why some of the commentators on CNBC predict this and would love someone to provide a viewpoint. I would have thought with all this printing of money that the dollar would be toast. What would be the logics behind the dollar rallying?

Delinky...Printing money is only one side of the equation the other side is how much money is evaporating into thin air, a tremendous amount has disappeared with this severe financial crises....so the net overall extra money in the system is difficult to assess at any given point in time. If there is news that the recovery has stalled it means more money has evaporated strengthening the dollar. Also if the global economy is perceived to have suddenly weakened the Companies pull their money back home (USA) causing demand for the Dollar..there are other scenarios too of course... one being China and India buying cheap Commodities (rawmaterials such as copper etc) for stockpiling using accumulated US$, therefore lowering their exposure to the US$ and weakeing the US$ value due to lower demand/oversupply. From the latest warehouse data this activity seemed to have waned of late. ...so this recent upward movement maybe a combination of all sorts of things plus adjustments as the updated economic data comes through for analysis... so like all markets there are ebbs and flows, day by day. With the Dollar in a medium term downtrend I would have a guess and say there is an net positive amount of US$'s in circulation now since 24 April 2009 uptrend break. As money creation provides economic stimulus + a lower $ value to which the FED is happy to have, as a lower $ helps lower the current account deficit and reduce debt I would assume the FED will attempt to keep the US$ low for a while yet. Usually the FED should have no problems holding down the Dollar value as economic change to a recovery mode usually has a lower value currency as one of those indicators. As the US$ is in a medium term decline this is (sorry Dumbass) an early indicator that the economy is reacting to recovery signals to which the Equity markets and commodity markets react favorably to and this has been seen with both of these leading markets having commenced their uptrend at a similar time as the US$ broke its uptrend and confirmed its downtrend. (reverse correlation)

From my chart (sorry its a little messy) you see the US$ index (blue line) is currently in a short term rally in a medium term downtrend.
The orange coloured support/resistance lines are of major importance.. If the 78.5 support line is broken it will signal a bear market cycle for this US$ index If it breaks upwards through the 83 resistance line it will confirm that the downtrend is only a bull market correction and the primary uptrend is re-commenced. Most indicators (not shown) are presently bullish however the Bollinger bands (pink/purple lines) are closing together signaling a possible near future change of trend. Note how accurate the Bollinger bands have been in the past.

My guess (and that is all it is) that this short term rally will peter out and a retest of the 78.5 support line is likely. The longer term chart shows a better picture with the breaking of the 9 month uptrend line (green line) together with a bearish double top ...this doesn't look like a bull chart to me. Hence good news for equities and raw materials (commodities).

Colin Twiggs has his easy to read chart here (http://www.incrediblecharts.com/tradingdiary/trading_diary.php) with slightly different figures.

If the US$ index rises above 83 and recommences its uptrend this of course spells bad news for commodity markets including Gold silver and oil and equity markets because theory has it that these markets are inversely correlated at this stage of the economic cycle ( bottom/early recovery stage). This is what Dumbass is assuming and although we use similar techniques it is amazing how we can get different answers... This is what makes investing so intriguing from my point of view.

With everyday new data is added to these variables..viewpoints forward can change quickly.

http://i458.photobucket.com/albums/qq306/Hoop_1/dxy_in15jun07_to_18june09.png

[Dr_Who]

Here's an interesting question.

What will happen to the USD if China (HK) depegs their currency to the USD?

[Hoop]

Here's an interesting question.

What will happen to the USD if China (HK) depegs their currency to the USD?

My view is... if the USA loses its super power status to other countries (possible scenario some time in the future) then the US $ would cease to be the international trading currency and the new super powered Country's currency takes its place.. and analysts will use that currency as an indicator factor instead.

The big fish in the small pond behaviour???

With the growth rate of China far exceeding that of the USA...analysts are forecasting that China's economy will be bigger than USA sometime in the 2020 decade....and the US $ currency debate will intensify as that decade nears.

The USA seems to be a little uneasy in losing this top dog status (obviously) as other less USA friendly countries are gaining more economic power such as the BRIC group.

Of interest

Growth Potential

Annual Growth rates 2011-2050

Brazil +4.3%
Russia +2.8%
India +6.3%
China +5.2%

source : Goldman Sachs

[delinky]

I am so glad I asked the question. You guys are so helpful and have enabled me to see more outside the square. I receive regular info from someone who resides in the US, who has been trading full time for over 25years and following "what really" is going on. He receives insider information and therefore messages to me are a bit cryptic for a newbie (or maybe I just don't understand the jargon), but basically he has been saying for a while now that US dollar is toast, Bonds are absolutely toast, and a war pending very soon and China are in the background buying up many many commodities. Apparently a new currency is inevitable and a lot more going on behind the scenes that the media is not allowed comment on. Hence, my question in the first place because if it really is all doom and gloom I just didn't get why on earth the US dollar will rise at all. Hoop, you put so much time and effort into replying and I so appreciate it. thank you. I am enjoying trading but truthfully am very confused at all the conflicting info out there.

[Kookaburra]

The presumption that US will lose superpower status to China id probably wrong. I have previous read a very good analysis of why which includes the inherent natural and infrastructure porblems of China. It has a rapidly aging population due to its one child policy. It has a serious shortage of water and natural resources. Much of the country is dessert. It is poorly equipped with ports and river transport. Compared with US it just cannot compared. It is a loose integration of many different cultural groups which could fall apart it conditions deteriorate as may happen with loss of export markets and income.

Some argue that despite the problems the US is the only currency where we know all the bad news. This is yet to be factored into the Euro and Yuan.

Credit destruction is destroying money more quickly that the US is printing it. And the quantitive easing it is practising is more credit creation than Zimbabwe type printing.

On balance I am still confident of the future of the USD and use it as a 'store of wealth' currency.

[STRAT]

I am so glad I asked the question. .Me too delinky. Thanks everyone.

[Dr_Who]

It looks to me like the Chinese are getting ready to float their currency in the future, maybe a few years time or even sooner. They are currently testing the market to see what the reaction is.

http://www.marketwatch.com/story/china-unveils-rules-on-yuan-settlement-facility

I have a tendency to be long on the Hong Kong dollar.

[srotherh]

It looks to me like the Chinese are getting ready to float their currency in the future, maybe a few years time or even sooner. They are currently testing the market to see what the reaction is.

http://www.marketwatch.com/story/china-unveils-rules-on-yuan-settlement-facility

I have a tendency to be long on the Hong Kong dollar.

Agree Doc

"The following is a comment made by the Deputy Foreign minister to a group of visiting business people. There was no maybe or conversation on the topic. It was emphatic.

“The financial crisis has fully exposed some shortcomings in the international currency system.

China is not seeking discussions but wants a diversified reserve currency.”

Last week the Bank of China renewed its call for the creation of a super sovereign reserve currency (defined as a basket of currencies) to reduce the dollar’s global domination."

[Valuegrowth]

.US Dollar is very strong now.

During last couple of days we saw heavy selling in all type of currencies including emerging and frontier market currencies. USD appreciated against most currencies such NZD, AUD, Indian and Sri-Lankan rupees, Malaysian ringgit, Philippine pesoetc. Why? Currency market is readjusting now. There are silver linings in these falling currencies. Because some sectors in the economy will benefit lot.

Both the Brazilian real and South African rand touched four-year lowsagainst the US dollar on Tuesday. The Indian rupee fell to a record low. Evencountries like the Philippines and Mexico have been hit by heavy selling. Somecentral banks have begun to intervene to control the currency slides. If I amcorrect The FTSE Emerging Markets index fell 1.7 per cent on Tuesday.

We have to accept USD dollar was underperforming against some currencies bothhard and soft currencies such as NZD, AUD, and Indian rupee due to overspeculations. As I said before it has become bull currency now. In other wordsthe dollar (USD) has entered a multi-year bull cycle. USD is number one reservecurrency in the world.

Every asset has cycles. We have to identify this cycles before others. Both NZD and AUD have appreciated more than 50% against some south Asian currencies during last five years. Now cycle has reversed and both NZD and AUD should depreciate not only against USD but also some emerging and frontier marketscurrencies in Asia. Few Asian currencies including India rupee will go up against NZD, AUD and CAD in the coming quarters. They will go down against USD. On the other hand USD will appreciate not only against emerging currencies but also against currencies such as AUD, CAD and NZD.

http://online.wsj.com/article/SB10001424127887323893504578556493706245344.html (http://online.wsj.com/article/SB10001424127887323893504578556493706245344.html)
Indian Rupee Hits New Record Low

http://www.bloomberg.com/news/2013-06-21/philippine-peso-set-for-worst-week-since-2010-on-fed-bonds-fall.html (http://www.bloomberg.com/news/2013-06-21/philippine-peso-set-for-worst-week-since-2010-on-fed-bonds-fall.html)
PhilippinePeso Set for Worst Week Since 2010 on Fed; Bonds Fall

http://www.reuters.com/article/2013/06/20/kenya-markets-idUSL5N0EW2BL20130620
UPDATE 1-Kenyan shilling ends weaker, shares inch up

http://www.thejakartaglobe.com/business/ringgit-heads-for-biggest-weekly-loss-in-3-years-on-fed-concern/ (http://www.thejakartaglobe.com/business/ringgit-heads-for-biggest-weekly-loss-in-3-years-on-fed-concern/)
Ringgit Heads for Biggest Weekly Loss in 3 Years on Fed Concern

For meabove events look like a currency war or currency crisis. Actually we arehaving a kind of gold and currency crisis now. These new developments will bring fortune for some companies in developed, emerging and frontier marketsdue to unexpected increase in profits when they convert currencies. So theywill have strong balance sheets in the coming financial year when compare with current financial year.

My ideas are not a recommendation to eitherbuy or sell any security or currency. Please do your own research prior to making any investment decisions. Please note that I do not endorse or takeresponsibility for material in the above hyper-linked sites.

[Valuegrowth]

I did 10 year analysis on few selected currencies including few frontier and emerging market currencies and how they traded against USD, NZD and AUD.In 2004 one dollar was equal to 45 Indian rupees and by 2008 it was around 39 rupees for one dollar while having fluctuations time to time. Then one dollar went up to Indian rupee 49 by2009. Indian rupee has appreciated against USD from 2004 to 2008 and from 2008to 2009 it has depreciated fast against USD. From 2009 to latter part of 2011 Indian rupee has appreciated from around Rs.49 to Rs.44 against USD. From 2012 to Indian rupee has depreciated against USD gradually while having volatility to around Rs.53 level. During last couple of day Indian rupee depreciated against USD faster than we thought. Now one USD dollar is equal to 59 Indian rupees.

USD has appreciated around Rs.90to Rs.116/- against Sri-Lankan rupee form 2004 to 2009 while having minor volatility.From 2009 to 2012. Sri-Lankan rupee has appreciated from Rs.116 to Rs.109 against USD. In 2012 there were devaluation of rupee and as a result of that USD went up against Sri-Lankan rupee. Otherwise rupee would have appreciated more. Now USD is appreciating against Sri-Lankan rupee and trading around Rs.129 against USD.

From 2004 to 2008 Malaysian ringgit has appreciated from MYR 3.8 to around 3.20 against USD. From 2008 to 2009 it depreciated against USD to MYR around 3.50 levels. From 2009 to later part of 2011 again MYR appreciated against USD to MYR around 3 levels. From 2012 to2103 MYR was trading around 3.06 levels while having volatility and recently it has depreciated to MYR 3.09 to level against USD.

In 2004 NZD dollar was trading around Sri-Lankan rupees 55 and by 2008 NZD appreciated rapidly against Sri-Lankan rupee to Rs.85 levels. Then from 2008 to middle of 2009 Rupee appreciated against NZD to around Rs.60 level. From 2009 to 2013 NZD has appreciated to around Rs.109. Recently rupee started to appreciate against NZD and trading around Rs.99against NZD.

In 2004 one NZD was around 26 Indian rupees and by 2008 it was depreciated against NZD to around Rs.33 level while having range bound around Rs.27 to Rs.31. From 2008 to 2009 Indian rupee appreciated to around Rs.26 against NZD and thereafter it NZD appreciated rapidly to INR around Rs.45 levels. In 2009 AUD was trading around Indian rupee 32 levels and it depreciated against AUD rapidly during last couple of years and was trading around INR 55 against AUD by 2013.

In 2009 AUD was trading around Sri-Lankan rupee 80 and it has appreciated against rupee rapidly and by2013 it was trading around Rs.135 and now it is trading around Rs.118/

Based on the above analysis NZD and AUD has appreciated not only against USD but also against some emerging and frontier currencies by more than 80% during last couple of years. Onthe other hand Malaysian ringgit has traded as a sister currency to both AUD and NZD. Even in emerging world and frontier world they invested more in NZDand AUD during last couple of years neglecting pound, euro and USD. Now currency cycle has changed and emerging world currencies are falling against USD. Finally USD has become number one bull currency. AUD, NZD and few emerging currencies have become bear currencies now. I believe Euro and Pound will not go down as other currencies as they have already factored to negative economic indicators. Both NZD and AUD will accelerate their bear journey now.

My ideas are nota recommendation to either buy or sell any security, commodity or currency.Please do your own research prior to making any investment decisions.

[janner]

I did 10 year analysis on few selected currencies including few frontier and emerging market currencies and how they traded against USD, NZD and AUD.In 2004 one dollar was equal to 45 Indian rupees and by 2008 it was around 39 rupees for one dollar while having fluctuations time to time. Then one dollar went up to Indian rupee 49 by2009. Indian rupee has appreciated against USD from 2004 to 2008 and from 2008to 2009 it has depreciated fast against USD. From 2009 to latter part of 2011 Indian rupee has appreciated from around Rs.49 to Rs.44 against USD. From 2012 to Indian rupee has depreciated against USD gradually while having volatility to around Rs.53 level. During last couple of day Indian rupee depreciated against USD faster than we thought. Now one USD dollar is equal to 59 Indian rupees.

USD has appreciated around Rs.90to Rs.116/- against Sri-Lankan rupee form 2004 to 2009 while having minor volatility.From 2009 to 2012. Sri-Lankan rupee has appreciated from Rs.116 to Rs.109 against USD. In 2012 there were devaluation of rupee and as a result of that USD went up against Sri-Lankan rupee. Otherwise rupee would have appreciated more. Now USD is appreciating against Sri-Lankan rupee and trading around Rs.129 against USD.

From 2004 to 2008 Malaysian ringgit has appreciated from MYR 3.8 to around 3.20 against USD. From 2008 to 2009 it depreciated against USD to MYR around 3.50 levels. From 2009 to later part of 2011 again MYR appreciated against USD to MYR around 3 levels. From 2012 to2103 MYR was trading around 3.06 levels while having volatility and recently it has depreciated to MYR 3.09 to level against USD.

In 2004 NZD dollar was trading around Sri-Lankan rupees 55 and by 2008 NZD appreciated rapidly against Sri-Lankan rupee to Rs.85 levels. Then from 2008 to middle of 2009 Rupee appreciated against NZD to around Rs.60 level. From 2009 to 2013 NZD has appreciated to around Rs.109. Recently rupee started to appreciate against NZD and trading around Rs.99against NZD.

In 2004 one NZD was around 26 Indian rupees and by 2008 it was depreciated against NZD to around Rs.33 level while having range bound around Rs.27 to Rs.31. From 2008 to 2009 Indian rupee appreciated to around Rs.26 against NZD and thereafter it NZD appreciated rapidly to INR around Rs.45 levels. In 2009 AUD was trading around Indian rupee 32 levels and it depreciated against AUD rapidly during last couple of years and was trading around INR 55 against AUD by 2013.

In 2009 AUD was trading around Sri-Lankan rupee 80 and it has appreciated against rupee rapidly and by2013 it was trading around Rs.135 and now it is trading around Rs.118/

Based on the above analysis NZD and AUD has appreciated not only against USD but also against some emerging and frontier currencies by more than 80% during last couple of years. Onthe other hand Malaysian ringgit has traded as a sister currency to both AUD and NZD. Even in emerging world and frontier world they invested more in NZDand AUD during last couple of years neglecting pound, euro and USD. Now currency cycle has changed and emerging world currencies are falling against USD. Finally USD has become number one bull currency. AUD, NZD and few emerging currencies have become bear currencies now. I believe Euro and Pound will not go down as other currencies as they have already factored to negative economic indicators. Both NZD and AUD will accelerate their bear journey now.

My ideas are nota recommendation to either buy or sell any security, commodity or currency.Please do your own research prior to making any investment decisions.

Thank you for the history lesson MARKETWINNER..

Currencies do not follow historic paths IMHO..

[Valuegrowth]

http://www.reuters.com/article/2014/08/22/...N0GM1Z020140822 (http://www.reuters.com/article/2014/08/22/us-markets-forex-cftc-idUSKBN0GM1Z020140822)

U.S. dollar net longs at highest in more than two years: CFTC, Reuters

[Valuegrowth]

http://www.fxstreet.com/analysis/market-outlook/2014/08/26/02/
US Dollar: Can't stop, won't stop

[Valuegrowth]

http://www.theglobeandmail.com/globe-investor/investment-ideas/us-dollar-climbs-to-four-year-high-amid-rate-hike-speculation/article20796048/

U.S. dollar climbs to four-year high amid rate-hike speculation Add to ... (http://www.theglobeandmail.com/globe-investor/investment-ideas/us-dollar-climbs-to-four-year-high-amid-rate-hike-speculation/article20796048/#)

[BFG]

Thought you guys might like this. It's what happens when your leader acts like a douche and your main export commodity gets slammed (USD VS RUB)

http://bigcharts.com/advchart/frames/frames.asp?show=&insttype=&symb=Usdrub&x=47&y=7&time=9&startdate=1%2F4%2F1999&enddate=12%2F4%2F2014&freq=1&compidx=aaaaa%3A0&comptemptext=&comp=none&ma=6&maval=10%2C30%2C50&uf=8&lf=4&lf2=2&lf3=8&type=4&style=320&size=4&timeFrameToggle=false&compareToToggle=false&indicatorsToggle=false&chartStyleToggle=false&state=11

[Valuegrowth]

As I said before we may see steep fall in commodity currencies such as AUD, CAD and NZD. However CAD may have some support in 2015. At the moment RUB is one of the worst performing currencies in the world. YEN and MYR are also weak. Selected emerging currencies also may have some support. 2015 may be good year for currency market as well. It will be year for USD. One USD could equal to NZD50 and AUD55 by the end of next year.

My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions.

[dingoNZ]

I don't agree with the NZD sitting anywhere near that by any means next year, given that the RBNZ came out last week stating they plan on continuing to increase rates over the next 24 months despite the falling dairy prices (the explicitly stated they weren't neutral and were looking for to continue increasing when it permits) and the face the FED keeps delaying hiking rates at their end. I would suspect that we stay where we are for another 3-4 months with a 1.5c range either side and then should the Fed finally do something with their rates we would decline by IMHO at most 10c, I don't think we will go below 0.69.

As for the AUD I suspect we will gain some forward momentum and potentially see close to parity given the falling Iron-ore and commodity prices in Australia, pairing this with the fact market commentators have been stating the RBA should not be hiking rates due to the mining sector being in a tough spot I don't think we will see the AUD gain much traction against the NZD this coming year. I think you will see a strong year on the NZX paired against an under-performing year on the ASX, just my opinion. DYOR.

[Valuegrowth]

Australia need a lower exchange rate to achieve balanced growth in the economy. When AUD fall NZD also will fall. IMHO 2015 will be very interesting year for some currencies especially for overvalued currencies such as NZD and AUD. After EURO, Yen and now RUB, above two currencies are more vulnerable to further fall. Even the federal government's $100 billion Future Fund has cut its exposure to the Australian dollar. Actually both AUD and NZD are at the beginning of their major downturn. Just like other market cycles that is how currency cycle works. We may see fall in these two currencies until 2016/17.

According to valuation metrics of some currency advisers, they have a long-term fair value at around AUD 70¢. I think before it adjusts to fair value it could trade 55/55c against one USD.

My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions.

[Valuegrowth]

http://www.reuters.com/article/2015/07/20/markets-forex-idUSL5N10024E20150720

FOREX-U.S. dollar hits three-month peak on rate-hike view