The dollar’s decline against the Euro and other major currencies has dominated the financial news. In the past two years the Euro has gained about 25 percent against the dollar and the Wan about 18 percent since 2005.

But there are currencies that have actually been falling against the green back. My guest today is Sovereign Society’s currency expert and editor of the Money Trader, Jack Crooks.

The dollar has plummeted in Europe and Japan. But it has actually gone up in many countries, such as South Africa, Indonesia, Iceland, South Korea, Argentina. What is the reason for the decline in these currencies?

Jack Crooks: You’d think by reading the news that the dollar has fallen against everybody, but the lowly green back has appreciated against some of those countries. The reasons vary. Iceland is a financial crisis and I think South Africa has a political problem. So you have different reasons for these falls against the dollar in these countries. And you have to get beneath the surface to see.

It goes to show that currencies aren’t always a one-way bets. No matter how bad a currency may look, it may be appreciating against something else.

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Laura Cadden: I was especially surprised to see the South African rand dropping 26 percent against the dollar in two years. Yet they’re one of the major gold producers of the world. How do you explain this situation?

Jack Crooks: That’s an odd one, especially if you look at the price of gold, as you said. It almost runs completely inverse to the dollar. If gold goes up, the dollar goes down. So you sure would expect the South African rand to go up as. But I think that’s a real political problem there:

The South African government really is shifting more from capitalism to a very socialist economy. They’re having power outages and you’re just seeing a real breakdown in a lot of the key factors that drive an economy. The political side is scaring a lot of investors out of South Africa. And since currencies are driven by money flow, if money is moving out of South Africa, its currency is going to fall.

Laura Cadden: Let’s talk about Iceland. The krona has slumped 26 percent against the Euro this year and it’s down 40 percent since mid-July 2007. What do you think is the big factor there?

Jack Crooks: Now Iceland is a financial fix. There’s a real banking crisis going on in Iceland because Icelandic banks borrowed a lot of international money from Norway, Denmark, Sweden, the European market.

Then we had the credit crunch. Then all of a sudden they couldn’t get the funds to refinance these credit lines. It fed directly into the currency.

There’s no free lunch: A lot of small investors were putting a lot of money in the Icelandic currency because the interest rate was so high. They thought they could earn ten, 15 percent in Iceland interest rates versus three percent in the United States.

There was a reason interest rates were so high in Iceland: Because there was a lot of risk. The currency fell off the table because of that risk when it came to fruition.

Laura Cadden: Iceland hiked their rates up to 15.5% in part because they were battling inflation of 11.8 percent. Can you imagine yields of inflation like this to a U.S. investor. I mean that’s just crazy.

Do you think it’s going to continue? The krona’s going to continue to decline?

Jack Crooks: Well, recently the banks of Norway and Sweden have come in to try and open up credit lines and really save the currency to a degree. This is a real emergency for Iceland.

As you said, it’s really a double whammy. It’s not only financial, but you have that inflation problem in the background. You also have the situation where their economy is starting to slow down. It’s bad news at the moment. So we really need to see how this shakes out because if we have another bout of the credit crunch globally, it’ll continue to feed into Iceland and I think will continue to hurt the currency.

Once we get through this credit problem and if the banking system is stabilized in Iceland I do think it’s going to be a great buy.

Laura Cadden: So are there any opportunities for U.S. investors to leverage this situation for long-term gains?

Jack Crooks: As I said, I think Iceland is going to turn around because the economy ultimately is stable. They just got over-extended on this credit crisis. So I think that would be a nice long-term play, but we want to see some consolidation technically there.

In other places there are a lot of emerging opportunities. Emerging markets all present opportunities—big risk, but the reward is there if you’re willing to take it.

Source: Currency Trading Strategies for a Volatile Forex Market