Key News

• Stiglitz Says Markets Are `Irrationally Exuberant' About Economic Recovery (Bloomberg)
• Euro Aspirants Must Stabilize Their Economies Before Adoption, Sramko Says (Bloomberg)
• First G20 economy to tighten policy since crisis (Financial Times)
• UK industry weakest since 1987 (Financial Times)

Quotable

“A man of genius can hardly be sociable, for what dialogues could indeed be so intelligent and entertaining as his own monologues?”

                             Arthur Schopenhauer

FX Trading - Gulf States Team Up With the RBA to Down the Dollar
A few headlines I saw this morning – have a look:

• Swiss franc rises towards parity vs dollar
• Russia's rouble firms to strongest vs dollar this year
• Rupiah, ringgit at 1-year highs as dollar falters
• A$ hits 14-mth peak on RBA hike, swap rates jump
• Indian rupee rises past 47/dollar to 4-month high
• NZ dollar hits 14-mth highs on Australia rate hike
• Singapore dollar at 13-month high, tracks euro

As you might imagine, the US dollar is undergoing another day of declines. Two items hit the wires in the last 24 hours that teamed up to knock the buck back further.

1. A news outlet reports the major oil states are secretly seeking to denominate global oil trade in something other than US dollars. The report, appearing in a UK newspaper, has since been denied by major oil producing nations. But it doesn’t matter; not only has the report influenced markets already, but the speculation provides fuel to those making a long-term case against the US dollar’s merits as a reserve currency.
2. The Reserve Bank of Australia pulled off a surprise interest rate hike (not a big surprise really). There was plenty of speculation that the RBA was on the verge of make the move toward tightening monetary policy, but the majority of analysts didn’t seem to think the central bank would start this month.

It’s clear that the overwhelming perception of the US dollar remains unchanged -- lately there’s been no reason to think any differently.

The RBA rate hike is not simply good news for holders of Australian dollars and Australian shares; but it can be taken (and likely is) as a sign that 1) China maintains a solid growth mentality, and 2) other parts of the world will follow Australia in recovery and in monetary policy. But not the US.

Barack Obama is currently considering ways of providing the US economy with additional stimulus, but not really. See, the out-of-control US budget deficits have come under much attention lately, and the administration must battle the forces that oppose adding any more hundreds of billions of dollars to the pile of public debt. Extensions of current stimulus programs are possible as that’s less forward than a new proposal to boost the economy.

Needless to say, policy in the US will remain loose.

So the interest rate and growth differentials – the two-headed beast the dollar is again battling – will keep pressure on the buck as long as no systemic, global economic set-backs occur. And as is exemplified in the hearsay surrounding the Gulf oil states and the US dollar, negative sentiment will apply additional pressure.

US Dollar Index Weekly