The dollar slipped against a basket of currencies, touching a nearly one-year low earlier, as the sell-off continued, on track for its worst weekly performance in more than three months. The greenback also fell to a fresh 2009 low versus the euro, but it recouped most of its losses.

The prospects for economic recovery and low U.S. borrowing rates continued to encourage investors to move cash out of the dollar into riskier assets in other currencies.

“Today we’re getting a little bit more action versus the yen and weaker U.S. stocks are helping,” said Patrick Brodie, chief FX dealer at Sumitomo Mitsui Banking Corp in New York.

The yen typically benefits when there is heightened risk aversion in the market.

“In the dollar’s case, selling has been fairly persistent all week and today is no exception. The euro and the Australian dollar should continue to make new highs next week.”

In early afternoon trading in New York, the dollar was down 1.4 percent on the day against the yen at 90.48 yen , having hit a seven-month low of 90.22, according to Reuters data.

Traders say there are option barriers at the 90 yen area, limiting the dollar’s downside.

The dollar was down 2.7 percent this week versus the yen.

The euro was also 1.4 percent lower versus the Japanese currency, trading at 131.88 yen .

The InterContinental Exchange’s dollar index <.DXY>, a gauge of the greenback’s performance against six other major currencies, was down 0.2 percent at 76.655 after falling to 76.457, its lowest in nearly a year.

The euro was little changed at $1.4597 , 2 percent higher on the week. The euro zone single currency hit a 2009 high of $1.4627 earlier, according to Reuters data.

The euro briefly erased gains earlier when a U.S. Coast Guard training exercise on the Potomac river set off a security scare as the United States marked the eighth anniversary of the Sept. 11 attacks.

Investors sold the dollar this week as signs emerged of a global recovery from one of the worst downturns this century. That encouraged investors to leave the perceived safety of the greenback and favor riskier assets such as stocks, emerging markets and commodity-linked currencies.

A report showing improving U.S. consumer sentiment on Friday further added to recent evidence that an economic recovery was picking up speed.

The Reuters/University of Michigan Surveys of Consumers preliminary reading of consumer confidence index for September came in at 70.2, the highest since June.

“Dollar selling momentum has picked up and it is likely to continue for a while,” said Win Thin, a currency strategist at Brown Brothers Harriman in New York.

Solid data out of China added to the view the global economy is on the road to recovery.  Questions about the dollar’s long-term value added to the negative sentiment towards the U.S. currency.

Sterling, meanwhile, rose 0.2 percent to $1.6682, within sight of a one-month high of $1.6742 , while the New Zealand dollar gained 0.5 percent to US$0.7066 .

NEW YORK, Sept 11 (Reuters)

In fact, in the face of a stagnant world economy unrivaled since the Great Depression, we’re now looking at an era of competitive currency devaluations – where every country tries to keep its own currency from rising too much.

Far too many investors are either unaware of these efforts, or dismiss these currency strategies as bureaucratic wrangling. But I’ve been watching this unfold for the past eight years, and have made a significant amount of money from this insight.

And there’s still a substantial profit to be made – for those who understand just what’s happening.

When Strength Leads to Weakness

Since about 2001, whenever any currency rises too much, the local manufacturers or farmers – or anyone who lives by exporting – start to scream about it. Their local governments respond by doing all they can to lower the value of that currency, having it fall in value and thus making exports cheaper – all this in the hope that the domestic economy will become better.

Pick any period so far in this young century and you’ll see that this is true. For instance, right now you see it in those countries whose currencies have soared the most in the last few months.

Let’s focus on the recent highest-flying currencies. The New Zealand dollar soared 23.6% against the U.S. dollar from mid-March through mid-June. That’s the best three-month performance for the Kiwi dollar since way back in 1971, when currencies began floating against each other.

And over 2009, as a whole so far, the strongest currency has been the South African rand, which has soared 18.3% against the dollar since Jan.1, the best performer of all the 16 major currencies. Other currencies that have been strong have been the Norwegian krone and the Canadian dollar (both
up 13% since 2009 began) and the Australian dollar (up 14.6%).

It should be no surprise that all these countries have been making noises and taking action to try to reverse that trend. Take New Zealand. This is a country that depends on exports, especially agricultural exports. Total export prices have plunged 8.2% from 2008’s last quarter to 2009’s first quarter. This is not an annualized rate, either, but a quarter-to-quarter drop. If continued at that rate, it would mean a 33% fall in export income over the year. According toFonterra Co-operative Group Ltd., the world’s largest dairy exporter, New Zealand farmers have suffered a 12% drop in milk prices over the last few weeks. The dairy industry accounts for 20% of New Zealand’s export earnings.

As The New Zealand Herald stated in an article on June 16: “That (the plunge in income for New Zealand dairy producers) explains why Reserve Bank Governor Alan Bollard (New Zealand’s counterpart to U.S. Federal Reserve Chairman Ben S. Bernanke) last week called the exchange rate rise against the U.S. dollar ‘unhelpful’ and a ‘real risk to us‘ as the country endures the deepest recession in three decades.”

The same article goes on to quote the head of the New Zealand Manufacturers and Exporters Association, John Walley: “We don’t see any green shoots in our markets both at home and abroad. And the high exchange rate is strangling any ’shoots’ that are poking their heads up.”

The New Zealand monetary authorities are doing all they can do cheapen their dollar. That includes slashing interest rates to just 2.5%, which is a shock to those of us who remember Kiwi interest rates as being the highest in the world. They are printing money and talking about actively intervening in the currency markets to sell their dollar short. New Zealand’s finance minister, Bill English, just came right out and said that his government would prefer a weaker currency.

I could go on and on. The Australian treasury secretary, Ken Henry, just announced, in language as radical as finance ministers usually get: “If today’s high exchange rates continue, that would imply downside risk to the economy.”

However, I don’t sense as grave concern at the rise of the Aussie dollar as I do with the people of New Zealand about their currency. Thus, it would not surprise me to see the Kiwi fall versus the Aussie, or, put another way, the Aussie falling less than the Kiwi.

Additional Global Currency Concerns

Moving on to Canada, we see that its central bank just announced that the  ”unprecedentedly rapid rise” of the Canadian dollar may “fully offset” any hope for economic recovery.

South Africa’s central bank has just announced that it has a policy of buying U.S. dollars in order to cheapen the rand. That country’s version of Bernanke, Tito Mboweni, said that although he used to be against intervention in the currency markets, the soaring South African rand has caused him to change his mind.

You can see why. Exports and domestic retail sales are plunging due to the high value of the rand. South Africa’s unemployment rate is now 23.5%, the highest of all 61 countries tracked by Bloomberg. Interest rates have been slashed this year from 7.5% to the current 4.5%, but this is not enough for the Union of Metalworkers, which has threatened to strike if interest rates are not cut more.

Finally, let’s look at Norway. Here is a European country, yet it does not use the euro, preferring instead to keep its own currency. This currency has risen by 13% so far this year against both the euro and the U.S. dollar. So are they happy about it in Oslo? Not very.

The strong currency has hit demand for Norway’s exports hard. In response to this, companies have cut staff, which in turn cuts domestic demand. Also, big companies laying people off is a very un-Norwegian thing to do. The world’s second-largest newsprint maker, Norske Skogindistrier ASA just announced job cutbacks. This has been something of a shock, even though the decline of newspapers should have been a warning. Newspapers just don’t want to pay higher prices for newsprint when the currency these products are denominated in has risen so much this year.

Norwegian Prime Minister Jens Stoltenberg, up for re-election this September, has said that supporting the labor market through this crisis – Norway’s first recession in more than 20 years (the last one coming when oil prices plunged back in the 1980s) – is his very top priority. He has pledged whatever money it takes to try to stimulate spending. And though, as far as I know, no one has publicly said that they want a lower krone, the central bank has cut interest rates fully seven times in the last eight months. It is now down to 1.25%, and stands ready to go lower.

One thing that’s important to remember: This is just a snapshot of those currencies that find themselves the strongest risers so far this year. At any given time in the last few years, whichever currencies have been strongest have screamed about their plight.

A year ago, for instance, with a euro at $1.60, Germany – a huge exporting country – basically said it wanted a cheaper euro. It got what it was seeking: The euro fell to $1.23 within months, but is now drifting back up. The United Kingdom wanted its high-flying pound – then at $2.10 – to fall to boost domestic and foreign demand for its goods. It got its wish: Within months the pound had plunged to $1.45. And on it has gone for a few years now.

A few years ago, Americans were angry that the Chinese had such a cheap currency and forced it to float. In the four years since that happened, China’s yuan has risen about 24% against the dollar and you don’t hear so many American threats. (Of course, this could also be because China owns so much U.S debt and America does not want to antagonize its largest lender).

Source: Global Currency Wars Reveal the World’s Best Money Plays

[Editor's Note: Part I of two installments. Look for Part II tomorrow.]

Good day… The currency markets took back what little strength the dollar mustered over the past two days with the Euro moving back above popping back above 1.36 and the Australian dollar moving back up over .70. The cause for this dollar weakness? Data released in the US yesterday was surprisingly strong again, so investors dumped the ’safe haven’ holdings of Treasuries and moved money back into higher yielding investments.

At one point yesterday the dollar index dropped precipitously (more than 1.5% in less than 10 minutes), and then bounced back up within a half hour. Jennifer McLean, who takes care of our currency trading while Chuck is away from the desk, said the sudden moves were due to Treasury Secretary Geithner’s comments. Apparently Geithner was asked about China’s call for a new international reserve currency yesterday at a NY event. He said that while he hadn’t read the proposal, he understood it as a plan “designed to increase the use of the IMF’s special drawing rights. And we’re actually quite open to that.” After hearing those words, currency traders immediately starting selling off the dollar. After all, if the Treasury Secretary of the US says the administration is open to a new international reserve currency, why do you want to hold dollars? I guess Geithner got wind of what he had done to the currency markets pretty quickly (the power of Blackberries!) and 15 minutes later he clarified his comments to say the US dollar should remain as the world’s reserve currency.

So the Treasury Secretary got a quick lesson in just how sensitive the currency markets are. The props which have held up the US dollar can be kicked out from under it with a few words from him. I have got to believe the quick sell off yesterday is a sign of what will happen in the coming months as we here more and more rhetoric about the need for an alternative reserve currency. Foreign nations are not going to want to continue to invest a majority of their reserves in a currency which is likely going to be losing value because of the inflationary impact of all of the debts and deficits here in the US. If the Euro zone can show some signs of stability, it could take advantage of the weakened state of the US$ to challenge for the reserve currency status. Just what Chuck has been talking about over the past few years.

The big story out of Europe yesterday was the failure of the UK bond auction. The UK Government held an auction to sell 1.75 billion pounds of bonds (commonly called gilts) yesterday. For the first time in 7 years, not enough buyers showed up at the auction so the UK couldn’t sell all of the gilts. This auction ‘failure’ sent interest rates up in the UK as investors demanded higher yields. The main reason the UK couldn’t attract enough buyers were their quantitative easing efforts of late. You see, the Bank of England was one of the first to announce they would be buying UK gilts in an effort to bring down interest rates and stimulate the economy. Sound familiar? This is what the Obama administration is going to do with last weeks announcement that it would be purchasing $300 billion of US treasuries.

This effort to drive rates lower than what the market dictates causes investors to just stay away from the auction. So it creates an environment where the government is the only willing buyer of their own debt, a situation that can become hyper-inflationary. So the government must eventually attract outside investors back into the debt auctions. To do this, they either have to let interest rates rise or let their currency value fall, making the purchases more attractive to outside investors. A combination of the two is the most likely scenario. This is the path the UK has started to walk down with the US close on their heels.

Chuck alerted me to the failed gilt auction yesterday, and sent me this note: “Oh… And did you hear that in the U.K. their Gilt auction (their treasuries) failed yesterday? Now, hasn’t just about everything that happened here in the U.S. during this financial meltdown happened first in the U.K.? Well… I think this is an ominous omen that they couldn’t get enough buyers for their debt auction… ”

As I reported in the first paragraph, the US data releases continued to be surprisingly strong. Both durable goods and sales of new homes unexpectedly rose in February according to yesterday’s reports. Durable goods orders jumped 3.4% in February, after dropping a revised 7.3% in January. This increase was the largest in more than a year, and the first positive move in seven months. The other big piece of data released by the Commerce Department showed New home sales increased 4.7% vs. the January sales. These two positive numbers eased fears in the equity markets, and encouraged investors to take more risks. This is why positive economic data releases in the US cause a sell off in the US$ (the reversal of the trend we were seeing earlier this year).

Does anyone find it odd that all of the data we are seeing this week are surprisingly strong, while the revisions to the prior month’s data show even bigger drops? I’m not accusing the government of massaging the numbers (wink wink) but it just seems odd. Today we will see the GDP numbers from 4th quarter of 2008. The economists are predicting a drop of 6.6% during the last quarter, but the trend with data releases this week would suggest the number will come a bit stronger. We will also see the weekly jobless claims which are expected to show another 650k US citizens were out of a job last week.

This would be the eighth consecutive week of a 600k+ number for jobless claims. The jobs numbers will have to start improving if the US is going to really turn things around.

The strength of the Euro was somewhat tempered by the release of German business confidence data which fell to the lowest level in more than 26 years. The global economic slump is weighing heavily on German companies who rely on exports. The data gave support to those calling for another rate cut by the ECB. The Euro has been caught in a fairly narrow trading band this week, as it has benefited from calls for an alternative reserve currency, but sold vs. poor European economic data.

China’s central bank Governor Zhou Xiaochuan helped investor confidence with a statement that the Chinese economy is recovering. “Leading indicators are pointing to recovery of economic growth,” Zhou said in an article on the central bank’s website today. The government “has taken prompt, decisive and effective policy measures, demonstrating its superior system advantage when it comes to making vital policy decisions,” he said. China continues to try and keep their economy growing above 8%, and will continue to be the growth engine of the global economy. A strong Chinese economy is good for the commodity markets, and global recovery.

As predicted, New Zealand’s current account deficit widened to a record last year as exports fell. Finance Minister Bill English said this week the deficit is “uncomfortably large” and makes New Zealand dependent on foreign funding. It is actually nice to hear a Finance Minister worried about the long term impact of running large current account deficits! Here in the US all we hear is ‘deficits don’t matter’. But the growing current account deficit is the main reason Chuck suggested investors move out of the kiwi last year, and we still think the Australian dollar is a better currency to own.

Both currencies rallied again yesterday, as investors moved out of ’safe haven’ US treasuries and into these higher yielding currencies. The Australian dollar also benefited from an statement by the Rio Tinto Group that predicted the metals markets would recover in the second half of 2009. Commodities account for over 60 percent of Australia’s exports, and 70% of exports in New Zealand. If data continue to show China is on solid footing, these two currencies should continue to appreciate.

It is getting late, so I will head right to the currency wrap-up:

Currencies today 3/26/2009: A$ .7020, kiwi .5770, C$ .8142, euro 1.3574, sterling 1.4561, Swiss .8883, rand 9.4226, krone 6.4553, SEK 8.0229, forint 222.57, zloty 3.3561, koruna 20.1542, yen 98.35, sing 1.5080, HKD 7.75, INR 50.5625, China 6.8319, pesos 14.172, BRL 2.2378, dollar index 83.77, Oil $53.53, Silver $13.575, and Gold… 935.77

Source: Geithner Tanks the Dollar, but then Pushes it Back Up

Trading is expected to be muted ahead of the interest rate announcement of the European Central Bank on Thursday, traders said. The ECB is widely expected to cut rates by 50 basis points.

Spot gold was at $812.00/814.00 an ounce at 1523 GMT, down from $821.05 in New York late on Tuesday. It touched a high of $828.65 earlier in the session, but slipped as the euro retreated and European equities and base metals turned negative.

U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange fell $8.10 to $812.60 an ounce.

“Gold has fallen as the dollar has increased on a flight to safety after very bad retail sales numbers,” said Calyon metals analyst Robin Bhar.

“People were calling for a pretty bad retail sales number as it stood, but this was even worse than most people had feared,” he said.

December retail sales numbers released earlier on Wednesday showed total sales down 2.7 percent last month, against expectations for a 1.2 percent fall.

The U.S. currency extended gains against the euro as investors spooked by the outlook for the global economy bought into the dollar as a haven from risk.

While in the longer run risk aversion is also likely to benefit gold, in the short term currency moves will have more of an impact on the precious metal, analysts said.

The single currency also came under pressure after Standard and Poor’s cut its credit ratings on Greece’s sovereign debt.

Bullion is often bought as an alternative investment to the dollar and tends to move in the opposite direction to it.

All eyes are now on the interest rates decision of the ECB on Thursday, which will have a significant impact on the foreign exchange markets, and consequently on gold.

“Everyone is in wait-and-see mode for the ECB,” said Simon Weeks, director of precious metals at the Bank of Nova Scotia.

Data released on Wednesday showed the German economy contracted sharply in the final quarter of 2008 and euro zone industrial production plunged for the seventh month running in November.

The data suggested the recession is worsening and strengthens views the ECB will cut rates deeply on Thursday.

CRUDE SLIPS

Oil prices also slipped, giving up earlier gains, on the spate of poor economic data.

Gold typically moves in line with crude prices, both because it is bought as a hedge against oil-led inflation, and as crude can indicate interest in commodities as an asset class.

In Asia, jewellers are buying up gold bars ahead of the Lunar New Year on Jan 26, dealers said. Premiums for gold bars were steady at between 10 and 20 U.S. cents to spot London prices in Hong Kong.

“With Chinese New Year approaching it will be very interesting to hear how sales have gone and whether the strong purchases continue after the New Year holidays,” UBS strategist John Reade said in a note.

Jewellery demand in the world’s largest bullion market, India, has however been lacklustre in recent weeks, as buyers await lower prices.

Interest in investment products backed by physical gold, such as ETFs, is also healthy. Bullion holdings of the world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust , remain near record levels.

Among other precious metals, spot platinum edged down to $930/940 an ounce from $941, while palladium was quoted at $178/183 an ounce against $182.

Spot silver was at $10.41/10.49 against $10.72.

LONDON, Jan 14 (Reuters)

This from Sovereign Society:

The hardcore dollar bears said we were crazy for even mentioning the idea that the dollar could rebound during all this economic turmoil.

How could the dollar possibly rally during the worst financial crisis in a generation? (That was a year ago before we knew how far and wide the credit crunch would reach.)

But the fact is, that’s exactly what’s happening now.

I’ll admit that the dollar didn’t rally right away. It took months. In fact, the dollar index didn’t bottom until the day after the Fed bailed out Bear Stearns.

But then, the dollar slowly started to creep higher. And since mid-year, the dollar has been on a tear against the world’s major currencies. In fact, the dollar has jumped 16% just since September.

Crisis Profiteering: Your Dollar Profits from Credit Crunch

And it looks like this dollar rally will continue.

In fact, the dollar is one of the few currencies we are long-term bullish on for 2009. We see the dollar rallying through at least the first half of 2009. As I said on Tuesday, the dollar will continue to fly high on a combination of…

• Its Safe Haven Status: Scared traders are running back to the world’s reserve currency as the credit crunch continues to sweep the markets.
• The Mad Dash for Cash: Stock investors are still dumping whatever is left of their portfolios and running back into cash (in this case, the U.S. dollar).
• Whoever Can Fix the Crisis Gets the $: For now at least, it seems Forex traders believe the U.S. is better equipped to deal with the credit crunch, so they’re pouring money into dollars.
• Crisis Feeds Low-Yielding Currencies: During recessions, Forex traders run for safety, so they trade in their high-yielding currencies for the safety of lower-yielding currencies. So the dollar, now yielding 1%, actually has an advantage right now.

Yes, You Can Invest in a Dollar Rally With Foreign Currencies

Now it may seem strange to play a dollar rally by investing in foreign currencies, but actually there are a couple key ways to profit off this massive dollar rally next year in the currency market.

You could call your stockbroker, and simply ask to short any number of currency ETFs, or even go long the few dollar ETFs they have available.

That’s an excellent way to play the dollar rally – particularly if you’re a longer-term investor. However, ETFs only offer conservative returns (15% to 20% – definitely not bad, assuming stocks continue to plummet).

But in my opinion, there is a bit more interesting way to play this dollar rally either in the options or exotics market. For one reason: Leverage. Leverage allows you to invest a smaller amount, but still shoot for the big gains – often double or triple-digit gains in just a matter of weeks.

Where to Find the Double or Triple-Digit Dollar Winners

The Philadelphia Stock Exchange (now known as the NASDAQ OMX) offers six different currency options that you can buy versus the U.S. dollar.

These currency options trade just like regular stock options, with regular calls and puts. They expire just like stock options, so you only hold them for a short period of time. Also, you only pay the premium for any one contract, so you never risk a penny more than your initial investment.

All World Currency Options are in dollar terms (so there’s no ugly conversion math to trade these). So for example, the British pound option contract tracks the price of the British pound in dollars.

The problem is, they do NOT offer an option on the dollar. So to take advantage of the dollar rally, you need to choose the currency that looks to drop the farthest against the dollar. Then you simply buy a put option on that particular currency.

It’s the same in the exotic Forex market. The exotic Forex market tracks the fast-moving emerging market currencies, so small moves can often lead to large gains. Also, the Forex market trades with both 10:1 or 100:1 leverage depending on what kind of “lot” size you use.

So to take advantage of this dollar rally, you would choose the emerging market that looks set to sink the fastest. Then simply pair that emerging market with the stronger dollar.

This year, our exotic subscribers have been doing just that. For instance, we paired the Hungarian forint with the U.S. dollar in July. We held this USD/HUF pair for a little over a week and made 361%, counting leverage.

Then we did it again. We paired the U.S. dollar with the Thai baht (USD/THB) and made another 334% for our subscribers. A couple larger plays on the Polish zloty and South African rand made 2,948% and 2,997%

Honestly, I’m not saying this to brag. I want to use it as an example of the potential of trading this small corner of the Forex market.

And likewise, you can also find similar opportunities in the options market (we’ve recommended winning options worth 127%, 185%, even 300% during the worst of the credit crisis this year).

But honestly, these are just two strategies to play the dollar rally. There are plenty more.

Source: How to Play the Great Dollar Recession Rally of 2009

Good day… And a Wonderful Wednesday to you! OK… Are you up on these “pirates” stories going on right now? That’s pretty unbelievable, eh? And… We are all fans of “pirates” here on the Currency Trading Desk, but these guys now are giving “our pirates” a black eye!

The currencies range traded yesterday in a very tight range, as Treasury Sec. Paulson, didn’t give in to the lawmakers and allocate $25 Billion of the TARP (Troubled Asset Relief Program) funds to automakers. King Henry said, “The rescue (read bailout!) package was not intended to be an economic stimulus or an economic recovery package. The $700 Billion TARP was designed to stabilize financial markets and the flow of credit, and it not a panacea for all our economic difficulties.”

Well… For once, I’m not going to take King Henry to the woodshed… The lawmakers were banging on him and Fed Chairman Big Ben to dole out funds to anyone that was in dire straits… But they held their ground… And therefore did not cast any “unknown” shadows over the markets. But U.S. stocks didn’t like it, and sold off after the testimony and questions on Capitol Hill.

The thing to think about with these automakers is the fact that they have become such HUGE finance companies, which is where, I believe I read, they “really make the money”… Shutting them down because they haven’t run their businesses correctly over the years isn’t the issue… It’s what to do with those financing companies… I could be totally wrong here, off base and picked off by a wily veteran lefty, but it’s the way I see it…

OK, well, for the currencies… Like I said above, they were stuck in the mud, in a tight range, with no where to go and no one to see. I was reading a note from well respected and famous analyst, Richard Russell yesterday… Let’s listen in to see what Mr. Russell had to say…

“Please remember, all these billions of dollars that the government is throwing at entities – all this money represents additional DEBT.

How the US dollar will hold up against this building-tower of debt is the question.

Ultimately, the trillions of newly-created dollars could lead to hyper-inflation.”

Yes… But the question that I keep getting asked, and I would ask of anyone that makes a statement like that is “when?” When do the markets wake up and smell the coffee? When do the markets realize that they’re on the wrong side of the road? I keep saying that it will all happen when the credit markets get unlocked… But that certainly doesn’t look like it’s going to happen any time soon… I just getting frustrated by all this… The signs are there for dollar weakness… It’s like they are glowing neon signs in bright colors, pointing to the dollar with exclamations like “should be weak”…

Remember when I used to write about how the debt level in New Zealand would come into focus once the hype over the high interest rates and Carry Trades were history? And for years people would write me and cuss at me about how they sold their kiwi because I said it would be in trouble when the interest rates and Carry Trades were history… But I held my ground, then… And I’ll hold it now… In fact, I’ve got company… By good friends over at Casey Research, including the guy that inspired me to write more and more, David Galland, had this to say yesterday….

“The foreign debt of New Zealand, which includes private debt, is a serious problem for them and is why their currency has fallen from NZD 0.80 to NZD 0.60 to the USD.

What will happen when the world finally realizes that the U.S. government debt (that is not even accounting for private debt) is already in excess of $10 trillion and well on its way to exceed $12 trillion in 2009? This is at a time when our $13 trillion GDP is sure to contract by a couple trillion. I am afraid the U.S. chart next year will not be that different, which bodes well for gold as the only real substitute to the fiat currency that will be created to cover the deficits.”

OK… Let’s talk about what’s going on in the markets right now… Not the future, which is unknown to all of us… We can only speculate about the future based on the data we have now, and the knowledge of history… What’s going on, as Marvin Gaye used to sing, is simply that the sentiment in the markets right now is so terrible and fragile, which is keeping the risk takers on the sidelines and investments centered around risk aversion on the burners. Any time the risk takers go out on the limb, another deep, dark, dangerous piece of data prints, or our “leaders” (read Paulson and Bernanke) make some stupid comment, which leads to a dollar rally, and the risk takers get squeezed.

Speaking of deep, dark, dangerous data prints… How about the news that Citigroup is liquidating its CSO hedge fund after it lost 53% of its value last month? This news won’t be looked at as anything but deep, dark and dangerous!

Speaking of data… Today, we’ll see the stupid CPI (consumer inflation), some Housing data, and the last FOMC meeting minutes… I would think the Fed Heads wouldn’t have any surprises in their minutes, like the Bank of England (BOE) did in theirs… The BOE’s minutes showed that the 150 BPS rate cut that was delivered earlier this month (which also begs the question as to why the BOE can issue their minutes within two weeks, while it takes the Fed over a month?) Anyway, the BOE minutes showed the 150 BPS rate cut was unanimous… Plus… There were quite a few calls to go to 200 BPS! WOW!

So… Ok, the stupid CPI, I’ve beaten this horse to death (no animals were hurt!) here with why I feel that CPI is stupid… And when those that have payments tied to CPI see today’s print they will fully agree with me. CPI is expected to have fallen .9% YOY… To 4%… Of course you and I, and those on the payments ties to CPI believe that inflation is really around 10% or more!

The Housing data today is the October Housing Starts, and Building Permits, of which both are expected to be weaker than September’s data…

I met Dan Ferris a year or so ago… A quiet, soft spoken guy, that when you look at him you just know he’s got a lot of brain matter… Real intelligent! I follow his writing from time to time, and Ty Keough sent me a note from Dan… This was in the Stansberry Research letter… “The money we use every day in the U.S. is debt. It is lent into existence. This record level of Treasury borrowing is the inflation engine itself, tank filled with gas, hood popped up, revving into the red zone right before your eyes.”

OK… I just saw / read a story that came across the Bloomie, that Bank of America (BOA) and Barclays Capital, are calling for a Aussie dollar rally next year, as they believe Australia will skirt a recession, that Europe, Japan and the U.S. are mired in. They even called for a rise to 70-cents in the next 6 months. Hmmm… I guess they’re of the opinion that the Carry Trade unwinding is coming to an end.

I, on the other hand, don’t believe that the Carry Trade is anywhere near an end… So, do with this information in your individualistic manner!

The data yesterday, saw PPI fall -2.8% in October… Which was mainly made up by the fall in oil prices… The TIC Flows showed the improvement I said we would see in this data, as the October flows showed an positive balance of $66 Billion, VS the $21 Billion in Sept. This still does not cover what’s needed to finance the Current Account Deficit, and Federal Direct Investment. And should have been expected to be so robust, given the flight to safe haven Treasuries…

Currencies today 11/19/08: A$ .6480, kiwi .5495, C$ .8115, euro 1.2650, sterling 1.5080, Swiss .83, ISK 182, rand 10.38, krone 7, SEK 8.02, forint 214.75, zloty 3.0425, koruna 20.3390, yen 96.80, baht 35, sing 1.5280, HKD 7.75, INR 49.99, China 6.83, pesos 13.19, BRL 2.3590, dollar index 86.98, Silver $9.45, and Gold… $738.30

That’s it for today… Well… Anheuser Busch is no longer, as the InBev deal closed yesterday… I was so focused on getting the Pfennig out yesterday that I totally forgot to send some love and congratulations toward Albert Pujols, the National League MVP for 2008! Way to go Albert! And… Hey! This IS HUGE NEWS! The good folks at Agora sent me the news yesterday that the movie I.O.U.S.A. has made the cut from 94 Documentaries to the final 15 that will be voted on for an Oscar! WOW! And to think I was interviewed for that movie, but was left on the cutting room floor! Congratulations to my good friend Addison Wiggin, and the other folks at Agora that had the idea to put this together in the first place! No improvement in the eye yet, still some pain to deal with, but I have to believe it will get better! Thanks so much, once again, to all of you dear readers that sent along good wishes and prayers for me. I feel bad that I have to keep announcing this stuff, but it is what it is, and life goes on. God willing… OK… Time to go… I hope your Wednesday is Wonderful!

Chuck Butler

Source: King Henry Keeps His Cash!

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

“The idea that the Fed will continue to cut rates has been completely put to bed and the market is now flirting with the idea of a rate hike. That has given the dollar a boost,” said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Connecticut, in Bloomberg. More from that story:

The dollar touched $1.5461 per euro, the strongest level since May 16, before weakening to $1.5549 as of 12:46 p.m. in New York, from $1.5519 yesterday. It has risen 0.5 percent this month. The dollar was little changed at 105.50 yen, after reaching 105.87 yesterday, the highest since Feb. 28. It has gained 1.5 percent this month against the yen. The euro rose to 164.01 yen, from 163.71 yen yesterday.

Brazil’s real was the biggest gainer this month among the 16 most-traded currencies versus the dollar, rising 2.2 percent. South Korea’s won, with a 2.5 percent drop, was the weakest.

“Economic expansion was primarily due to a boost in exports due to the combination of a weak dollar and strong overseas sales,” says Jennifer Yousfi in Money Morning. “Imports also declined, as the trade deficit shrank to its lowest level in five years.

“The slight boost in GDP could be just what the US Federal Reserve needs to hold off on any further interest rate cuts.”

“My friends and I have been debating the ‘recession’ topic for a while now”, says Wayne Mulligan in The Penny Sleuth. “Are we currently in one? Will we run into one this year or next? What will the effects be?

“But when I read that [Warren] Buffett thinks the US is already in a recession and it will be ‘longer’ and ‘deeper’ than any we’ve seen for quite some time, I definitely began to think less about ‘what if we go into a recession’ and more along the lines of ‘What should I do with my money now?’”

Click here to find out which discount retailers Wayne thinks are worth digging into as the recession bites.

Jack Crooks provides perspective.

Click here to watch the video and find out more.

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