Oil futures reached an intraday record of $ 70.85 on August 30, the day after Hurricane Katrina hit the Gulf Coast. While prices have declined in the weeks following, it is interesting to see how commodity prices and the specter of inflation affects the exchange rate (FX) market, particularly the U.S. dollar. The traditional factors of supply and demand have undoubtedly contributed to the long-term trend of energy prices. The demand side of the equation was taking a lot of press this year, with an emphasis on the growing thirst for oil in China and India. However, the recent rise in oil can be attributed primarily to hurricane-related speculation in the futures market and limited refining capacity and centralized (in the Gulf Coast), USA
Economic data released in recent weeks begun to consider the effects of hurricanes Katrina and Rita, which devastated the coast of the United States in August and September. These data confirm that the Fed is that all the time that the economy is growing at a rapid pace and that inflation, not recession, should apply.
September employment data showed the first net job loss since May 2003, but the decline of 35,000 jobs was much smaller than the decline expected. September CPI showed the largest monthly increase in 25 years. However, when the volatile components of food and energy are removed, inflation has been fairly mild 0.1%. This was slightly lower than the market anticipates and suggests that high energy prices have not gone through the base number yet.
Also, the September issue as PPI has exceeded expectations and was the largest monthly increase in 15 years. However, once again, take away food and energy and see that wholesale prices rose 0.3% relatively small. This number exceeded basic expectations, so it could be inferred that high energy prices starting to affect prices at the wholesale level and is only a matter of time before these high prices to consumers. Lower confidence than expected retail sales and 13 years under a new consumption suggests that high energy prices are actually influencing the minds of American consumers. How will it play out, especially in the retail sector in the holiday season is now one of the major Wall Street.
With the "inflation" of the word is on everyone's lips these days, we expect the Fed to continue tightening of schedule. The Fed raised its target for overnight loans by 25 basis points to 3.75% in September, increasing its kind since June 11, 2004. Another rate hike is expected in October and at least 25 bp bulge is almost assured in November or December.
The increase in U.S. interest rates and a growing economy in the United States were the drivers of current U.S. foreign Treasury bonds and the stock market, respectively. These flows translate into demand for U.S. dollars, which has kept the dollar in general and the offer in September and October. Although the claim that the equity market is vulnerable at this time, the image of interest rate differentials should continue to support the dollar until the end of the year.
High energy prices and fears of inflation are not unique to the United States' central banks and finance ministers of the Group of 20 industrialized and developing countries met in Beijing this month. Press release published on October 16, said that high oil prices "could add to inflationary pressures, slow down growth and cause instability in the global economy.''This should benefit the dollar and the times of global economic uncertainty, the dollar is still considered "safe" haven currency. Even if we see other countries begin to tighten monetary policy, U.S. interest rates remain significantly higher.
Removal of the final 115, 00 USD-JPY bodes well for further gains in the U.S. dollar against the yen in the area of 118/120. On the other hand, the bottom of EURUSD at 1.1868 July convincingly denied to trigger further gains in the U.S. dollar against the euro. Such a move would distract from 2004 down to 1.1759/78 initially, but the potential would fall below 1.1500.
In times of inflationary pressures, the dollar has a tendency to lose ground against the currencies of raw materials. The commodity currencies are the currencies of countries that receive most of their export sales of raw materials. Typical examples of the first liquid currencies are the Canadian dollar, Australian dollar and New Zealand dollar.
The dollar has reached the end of 17 years for new low in September compared to the Canadian dollar on the back of soaring oil and metal prices. While the U.S. dollar recovered from the depression, the gains are corrective in nature, and we look long-term bearish on USD CAD to continue. Similarly, AUS-USD and the NZD-USD consolidating below important resistance to the options available for short gains additional medium term.
At some point, domestic inflation and the rise of the U.S. dollar back to focus on the U.S. trade deficit and balance of payments. As in the U.S. goods and services more expensive, as well as domestic and foreign consumers look elsewhere. The point where the U.S. stock market really be vulnerable. The risk of loss on the stock market leads to a negative impact on streams in the United States, and therefore long-term dollar decline is likely to start using for themselves. The conventional wisdom in the financial services sector according to the release 50-10% of their portfolio in alternative investments, such as offered by CFS Capital, it is desirable diversification necessary to protect against attempts to negative in a more traditional asset classes.
