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Dollar Gains on Domestic Data, Loses Ground vs. Yen

By , August 28, 2014 6:29 pm

The US dollar rose against some of its major peers, including the euro, with help of positive domestic data. It looks like new from Ukraine limited gains somewhat and actually send the greenback down versus the Japanese yen and even the Great Britain pound.

Economic indicators from the United States were good, particularly the gross domestic product data and the housing report. GDP expanded 4.2 percent according the preliminary data, compared to 4.0 percent in the previous estimate. Pending home sales surged 3.3 percent to the highest level since August 2013.

The dollar did not perform particularly well despite the supportive indicators, perhaps due to escalation of the conflict between Russia and Ukraine. While usually the greenback profits from geopolitical uncertainty, it looks like trader think that the yen is a safe option now.

EUR/USD fell from 1.3192 to 1.3184 as of 23:19 GMT today. GBP/USD rose a little from 1.6575 to 1.6590. USD/JPY declined from 103.87 to 103.71, reaching the low of 103.55 intraday.

If you have any questions, comments or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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Ringgit Retreats vs. Dollar, Retains Optimistic Prospects

By , August 28, 2014 10:19 am

A fan of Malaysian currency notesThe Malaysian ringgit retreated a bit against the US dollar today after the initial rally, but analysts still have a positive outlook for the currency due to Malaysia’s accelerating economic growth and expectations of an interest rate hike.

Malaysia’s gross domestic product expanded 6.4 percent in the second quarter of this year, demonstrating the fastest growth in more than a year and beating analysts’ estimates. The Bank Negara Malaysia increased its key interest rate in July, and experts think that the central bank may perform another interest rate hike at the next month’s policy meeting. The ringgit was unable to maintain its rally against the dollar despite the optimistic prospects as positive economic data from the United States bolstered the greenback.

USD/MYR went up from 3.1465 to 3.1485 as of 15:04 GMT today following the drop to 3.1428.

If you have any questions, comments or opinions regarding the Malaysian Ringgit, feel free to post them using the commentary form below.

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Taiwan Dollar Gains on Capital Inflows

By , August 28, 2014 10:17 am

New Taiwan dollar banknotes and coinsThe Taiwan dollar advanced today on speculations that capital inflows into Taiwan’s economy will prompt the central bank to refrain from an intervention even as the currency appreciates.

Taiwan’s benchmark TAIEX index rallied 1.1 percent today as overseas investors poured a net $ 666 million into local shares. Analysts think that inflation may accelerate to 1.8 percent this month, the fastest pace since February 2013. Unlike some other emerging market currencies, the Taiwan dollar was able to maintain gains versus its US counterpart.

USD/TWD ticked down 0.06 percent to 29.93 as of 15:17 GMT today.

If you have any questions, comments or opinions regarding the Taiwan Dollar, feel free to post them using the commentary form below.

Earlier News About the Taiwan Dollar:

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Canadian Dollar Retain Strength

By , August 28, 2014 4:50 am

Canadian coins on Canadian dollar billsLoonie is retaining some of its recent strength in Forex trading, logging gains on the Burger King plan to buy Tim Hortons, as well as getting some help from expectations for positive economic data, due out tomorrow.

Canadian dollar is getting a boost from high expectations right now. While some believe that the loonie is overvalued, right now the currency is doing reasonably well against most of its major counterparts.

Loonie got a big boost yesterday, thanks in large part to the news that Burger King is planning to buy coffee and donut chain Tim Hortons. The deal will go down in Canadian currency, so many expect demand for loonies to rise on the international market.

Additionally, the Canadian dollar is gaining some strength from the hopes for good data tomorrow. Many currency traders and analysts expect Statistics Canada to release a GDP report for June that shows a solid increase. Expectations for the loonie are high.

Canadian dollar might not retain this strength, though. Risk appetite is likely to fade on news from Ukraine, and some think loonie is overvalued.

At 11:18 GMT USD/CAD is down to 1.0855 from the open at 1.0865. EUR/CAD is down to 1.4313 from the open at 1.4334. GBP/CAD is down to 1.8009 from the open at 1.8010.

If you have any questions, comments or opinions regarding the Canadian Dollar, feel free to post them using the commentary form below.

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Sanctions & the Dollar

By , August 28, 2014 2:02 am

August 27, 2014

A Fall From Grace?

Sanctions & the Dollar

by CONN HALLINAN

The recent round of sanctions aimed at Moscow over the crisis in the Ukraine could backfire on Washington by accelerating a move away from the dollar as the world’s reserve currency. While in the short run American actions against Russia’s oil and gas industry will inflict economic pain on Moscow, in the long run the U.S. may lose some of its control over international finance.

Proposals to move away from using the dollar as the international currency reserve are by no means new. Back in 2009, the Shanghai Cooperation Organization (SCO) proposed doing exactly that. SCO members are Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. Afghanistan Iran, India, Pakistan and Mongolia have SCO observer status, and the organization has close ties with Turkey and the Association of Southeast Asian Nations.

Ever since the 1944 Britton Wood Agreement, the world’s finances have been dominated by the U.S. dollar, the International Monetary Fund (IMF), and the World Bank. But, according to economist Jeffrey Sachs, that world is vanishing and the dollar cannot continue to hold the high ground, because “the role of the United States in the global economy is diminishing.”

While it may be diminishing, the U.S. and its European allies still control the levers of international finance. For example, the U.S.’ slice of the global GDP is 19.2 percent, and its share of IMF voting rights is 16.8 percent. In contrast, China, with 16.1 percent of the global GDP, has only 3.8 percent voting rights in the IMF. The presidency of the organization is reserved for a European.

In 2010, the World Bank “reformed” its voting rights to increase low and middle-income countries from 34.67 percent to 38.38 percent, although even this modest adjustment has been sidelined because the U.S. Senate refuses to accept it. The wealthier countries still control more than 60 percent of the vote. The presidency of the Bank normally goes to an American.

In early August of this year, the BRICS countries—Brazil, China, India, Russia and South Africa—launched a series of initiatives aimed at altering the current structure of international finance. Besides pushing to dethrone the dollar as the world’s reserve currency, the organization created a development bank and a Contingent Reserve Arrangement (CRA). The former would allow countries to by-pass the IMF and the World Bank, with their tightfisted austerity fixation, and the latter would give countries emergency access to foreign currency.

The development bank will start off with $ 50 billion in the kitty, but that will soon double. The BRICS will also be able to draw on $ 100 billion from the CRA. While by international standards those are modest sums—the IMF has close to $ 800 billion in its coffers—the BRICS bank and CRA has just five members, while the IMF serves hundreds of countries. Eventually the BRICS observer members may be able to tap into those funds.

Last month’s sanctions went straight for Russia’s jugular vein: the development of its massive oil and gas reserves and Moscow’s construction of the South Stream pipeline. When completed, South Stream will supply Europe with 15 percent of its natural gas and generate over $ 20 billion in annual profits. Indeed, there is suspicion among some Europeans that the real goal of the sanctions is to derail South Stream and replace it with U.S. shale-based American oil and gas.

Sanctions can do enormous damage.

The United Nations estimates that the sanctions against Iraq were responsible for the deaths of some 500,000 Iraqi children from 1991 to 1998.

The sanctions aimed at Iran’s oil and gas industry have cut deeply into government revenues—80 percent of the country’s foreign reserves are generated by hydrocarbons—resulting in widespread inflation, unemployment and a serious national health crisis. While humanitarian goods are not embargoed, their cost has put medical care beyond the reach of many Iranians.

Associated Press reporter Nasser Karimi wrote last year that some medicine and medical equipment costs have risen 200 percent: “radiology film up 240 percent; helium for MRIs up 667 percent; filters for kidney dialysis up 325 percent.” The cost of chemotherapy has almost tripled.

Iran’s exclusion from the Society for World Wide Banking (SWIFT) makes it impossible to transfer funds electronically. That, in turn, makes buying the raw materials to manufacture generic medicines expensive and difficult.

The recent crash of an Iranian passenger plane that killed 39 people was, in part, the result of sanctions. Because Iran cannot purchase spare parts for its Boeing and Airbus planes, it is forced to use alternatives, like the trouble-prone Ukrainian-made A-140 aircraft that went down Aug. 10. Another A-140 crashed in 2002, killing 46 passengers.

In short, opposing the U.S. and its allies can be dangerous to one’s health.

There is growing opposition to the widespread use of sanctions, as well as to the ability to isolate countries from international finance by excluding them from things like SWIFT. Coupled with this is a suspicion that the U.S. uses its currency to support its economy at the expense of others.

After the 2007-08 economic meltdown, the U.S. lowered its interest rates and increased its money supply, thus making its exports cheaper and other countries imports more expensive. Developing countries have blamed these policies for artificially driving up the value of their currencies and, thus, damaging other countries economies. Brazilian Finance Minister Guido Mantega calls it waging “currency war.”

With the U.S. now pushing higher interest rates and throttling back on buying foreign bonds, many developing countries fear that international capital will flow back to the U.S., leaving countries like Brazil high and dry.

But as long as the world’s reserve currency isin dollars, the U.S. will be able to manipulate global finance and block countries like Iran from any transactions using dollars. But that may be coming to an end. With China set to replace the U.S. as the world’s largest economy, it is only a matter of time before the renminbi—or some agreed upon international method of exchange—replaces the dollar.

China is already moving toward bypassing New York as the world’s financial center, instead routing finances through Hong Kong and London. “There can be little doubt from these actions that China is preparing for the demise of the dollar, at least as the world’s reserve currency,” says Alastair Macleod of GoldMoney, a leading dealer in precious metals.

A number of countries are already dealing in other currencies. Australian mining companies have recently shifted to using China’s reniminbi. How dumping the dollar will affect the U.S. is not clear, and predictions range from minor to catastrophic. What will almost certainly happen is that the U.S. will lose some of its clout in international finance, making it easier for developing countries to move away from the American economic model: wide-open markets, fiscal austerity, and hostility to any government role in the economy.

Diminishing the role of the dollar may make it harder to apply sanctions as well, particularly in those areas where Washington’s policies are increasingly alienated from much of the world, as in Iran, Cuba, and Russia. The European Union (EU) has sanctioned Russia over Ukraine, but not to the extent that the U.S. has. The EU’s trade with Russia is a major part of the Europe’s economy, while Russian trade with the U.S. is minor. And the BRICS—who represent almost a quarter of the world’s GNP and 40 percent of its population—did not join those sanctions.

Addressing the BRICS delegates in Fortaleza, Brazil, Russian President Vladimir Putin said that “together we should think about a system of measures that would help prevent the harassment of countries that do not agree with some foreign policy decision made the by the U.S. and their allies.”

In the long run, the EU may come to regret that it went along with Washington. German industry has taken a big hit—trade with Russia fell 20 percent from January through May—and Russia’s ban on EU agricultural products has badly hurt Poland, Lithuania, Germany, Denmark, Latvia, Finland and the Netherlands. Indeed, European Bank President, Mario Draghi, warned that the current EU recovery is extremely fragile and that sanctions could push it back into recession.

The Germans are especially worried that Russia will turn to Asia, permanently cutting Berlin out of Moscow’s economic sphere.

There are enormous changes ahead as a result of climate change and population growth. While there has been a reduction in the number of people living in extreme poverty—making less than $ 1.25 a day—almost all that reduction was in China. Things have actually gotten worse in parts of Asia and Africa. By 2050 the world’s population will grow to nine billion, and 85 percent of that growth will be in developing nations, the very countries that most need help to confront the consequences of that future.

Unless the institutions of international finance are wrested from the control of a few wealthy nations, and unless there are checks on the ability of the U.S. and its allies to devastate a country’s economy over a disagreement on foreign policy, those figures bode for some serious trouble ahead.

http://www.counterpunch.org/2014/08/27/sanctions-the-dollar/

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Dollar Halts Rally as Traders Trim ECB Easing Bets

By , August 27, 2014 5:57 pm

Panoramic view on many US hundred-dollar billsThe US dollar declined yesterday and maintained its losses today as investors trimmed bets on monetary easing from the European Central Bank. It is also likely that profit-taking contributed to the greenback’s drop.

The ECB will conduct its monetary policy meeting on the next week, and traders were anticipating additional monetary accommodation after bearish comments from ECB President Mario Draghi at the Jackson Hole Symposium last week. But German Finance Minister Wolfgang Schauble challenged such view, suggesting that the market’s interpretation of Draghi’s words is not necessary true. This statement made market participants to review their strategies that heavily relied on additional stimulus from the ECB. One of such strategies was shorting EUR/USD.

The dollar also fell as traders decided to take profit from the rally that has started basically in July. Additionally, Forex traders were reluctant to buy dollars ahead of a slew of economic reports from the United States on Thursday.

EUR/USD rallied from 1.3168 to 1.3192 yesterday and traded near this level as of 00:43 GMT today. GBP/USD was at about 1.6584 following yesterday’s advance from 1.6539 to 1.6575. USD/JPY sank from 104.05 to 103.87 at the previous trading session and dropped to 103.73 at today’s session.

If you have any questions, comments or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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NZ Dollar Gains on Fonterra Dairy-Price Forecast

By , August 27, 2014 7:04 am

All NZD denominationsThe New Zealand dollar climbed today after Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, maintained its milk-price forecast on expectations that China will increase imports.

China reduced its purchases of dairy products after building up inventories, making Fonterra cut its forecast previously. Many analysts had expected another cut today and were relieved to see that the forecast remained unchanged as the group expects China to boost dairy imports. Milk products account for almost a third of the Australia’s exports.

NZD/USD climbed from 0.8330 to 0.8369, and NZD/JPY advanced from 86.69 to 86.95 as of 12:06 GMT today.

If you have any questions, comments or opinions regarding the New Zealand Dollar, feel free to post them using the commentary form below.

Earlier News About the New Zealand Dollar:

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Dollar Pares Gains After Opening Sharply Higher

By , August 25, 2014 4:58 pm

A sheet of new hundred-dollar billsThe US dollar declined today against its most-traded peers, yet it is important to understand that the currency opened sharply higher, meaning that it still trades above the last week’s closing rate against most majors.

The hawkish Federal Reserve minutes as well as the relatively balanced stance of Chairperson Janet Yellen allowed the dollar to surge. While the currency lost its gains versus the Great Britain pound, returning to the Friday’s closing level, it still trades above the Friday’s close versus the Japanese yen and near the highest rate since September against the euro.

The greenback will likely maintain its bullish bias unless this week’s economic data spoils the optimistic outlooks for the economy of the United States. Truth be told, today’s reports were not particularly helpful as the Markit Flash Services Purchasing Managers’ Index fell more than was expected and the new home sales trailed forecasts. Yet there are still plenty reports to be released later this week, and they may reinvigorate optimism for US economic growth.

EUR/USD traded at about 1.3191 as of 21:45 GMT today after closing at 1.3243 on Friday and opening at 1.3194 today. GBP/USD traded not far from the the Friday’s close of 1.6573 after opening at 1.6547. USD/JPY declined from 104.26 to 104.04.

If you have any questions, comments or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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US Policy Outlook Spurs Dollar to Weekly Gains

By , August 23, 2014 7:50 am

Ulysses S. Grant on US 50-dollar billThis week was very positive for the US dollar, allowing it reach a new high for this year against the euro and to gain against other major peers. The major reason for the rally was the comments of US policy makers.

The minutes of the latest Federal Reserve policy meeting demonstrated that US Fed members are considering raising interest rates earlier. Economic data from the United States supported the optimistic outlook for US economic growth.

Another major event was the speech of Fed Chairperson Janet Yellen at the Jackson Hole Symposium. She remarked on the labor market improvement:

More jobs have now been created in the recovery than were lost in the downturn, with payroll employment in May of this year finally exceeding the previous peak in January 2008.

She added:

Over the past year, the unemployment rate has fallen considerably, and at a surprisingly rapid pace.

While the tone of her speech was not completely hawkish, more dovishness was priced in, allowing the dollar to rally. The gains were limited, though, due to profit-taking.

EUR/USD dropped from 1.3392 to 1.3243 — the lowest weekly close since September. GBP/USD declined from 1.6728 to 1.6573, the lowest close since March, over the week, while USD/JPY advanced from 102.32 to 103.95 — the strongest weekly closing rate since January.

If you have any questions, comments or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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US Policy Outlook Spurs Dollar to Weekly Gains

By , August 23, 2014 7:50 am

Ulysses S. Grant on US 50-dollar billThis week was very positive for the US dollar, allowing it reach a new high for this year against the euro and to gain against other major peers. The major reason for the rally was the comments of US policy makers.

The minutes of the latest Federal Reserve policy meeting demonstrated that US Fed members are considering raising interest rates earlier. Economic data from the United States supported the optimistic outlook for US economic growth.

Another major event was the speech of Fed Chairperson Janet Yellen at the Jackson Hole Symposium. She remarked on the labor market improvement:

More jobs have now been created in the recovery than were lost in the downturn, with payroll employment in May of this year finally exceeding the previous peak in January 2008.

She added:

Over the past year, the unemployment rate has fallen considerably, and at a surprisingly rapid pace.

While the tone of her speech was not completely hawkish, more dovishness was priced in, allowing the dollar to rally. The gains were limited, though, due to profit-taking.

EUR/USD dropped from 1.3392 to 1.3243 — the lowest weekly close since September. GBP/USD declined from 1.6728 to 1.6573, the lowest close since March, over the week, while USD/JPY advanced from 102.32 to 103.95 — the strongest weekly closing rate since January.

If you have any questions, comments or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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