Commodity currencies, including the likes of the Canadian, Australian and New Zealand dollars, are set to be the major gainers from the latest bout of dollar weakness. The dollar was sent tumbling in early trade after a Chinese official said China should consider shifting its forex reserves to "stronger" currencies, sparking talk of further reserve diversification. The news only served to add to the growing list of reasons to sell the US dollar, including ongoing credit concerns and an ailing economy.Other currencies soared across the board, but leading the way were free floating commodity currencies -- those whose countries are major producers of oil and/or metals. The Canadian dollar was the biggest gainer, rising by well over 1 pct to reach a multi-decade high of 0.9056 per US dollar, and the Aussie and Kiwi dollars not far behind.
The dollar's slump today has been accompanied by massive gains in oil and gold prices, giving all the more reason for these currencies to gain, as well as their attractiveness as high-yielding assets.
People are not taking this seriously. When fuel oil no.2 gets to $5+/gallon in February, the shrieks from New England will make the moans from NOLA seem like hiccoughs. This dropping of interest rates was one of the worst Fed decisions since 1929.
| A recession wouldn't be a good move right now, however, and the liquidity scare in the market has Bernanke worried. All the Fed governors got their grade-school economics education on how not to repeat the errors of 1929. So they'll cut rates and accept the consequences rather than see the economy plunge into a deep recession, particularly in the year before an election. |