Currencies

Hi all,

I have been watching the currency markets for quite a while now and one thing has me curious..... The US$ seems to move in opposite to the share index, and I am curious as to why this would be. I am also wondering just how long the drop in the value of the US$ can be sustained before problems start to become severe.

When I first came to the US 8 years ago, one Aust dollar would buy 49.5 US cents. Now that same dollar will buy over 90 US cents, which means that the US$ has fallen almost 50% in the last 8 years. That is quite a major drop! I think that the only reason the US has not been majorly impacted is because countries such as China have linked the value of their currency to the US$. If they even change from this, the inflation in the US could be very bad indeed.

Any thoughts anyone?

Cheers

Maurice

Maurice Clark said:
I have been watching the currency markets for quite a while now and one thing has me curious..... The US$ seems to move in opposite to the share index, and I am curious as to why this would be. I am also wondering just how long the drop in the value of the US$ can be sustained before problems start to become severe.

Reasons the stock indices can move against the dollar can include:

1) the impact on international competition for exports
2) potential positive impact of weak dollar on raw materials producers (food, mining & oil companies) -- especially those which are heavily leveraged and can pay off old debts with ever-cheaper dollars from ever-higher commodity revenues
3) currency divergence causing U.S. stocks to look cheap to foreign investors in terms of their currencies
4) lately dollar often rallies on extreme market stress when metals get dumped and there is massive buying of U.S. treasuries - calming markets show opposite effect
5) massive liquidity action by central banks can generally be expected to both inflate stock markets and deflate currency values, so to have both at once following such action shouldn't really be too surprising

Look at the mountain of US debt and you know all there is to know about how the story of the buck will end short of some sort of financial miracle. Of course it (the buck) will occasionally be manipulated upward, but the overarching trend is down, down, down. The poo will really start to hit the fan big time when we lose reserve status. For those who couldn't read the handwriting on the wall, it will mark the beginning of the official scramble NOT to be the biggest bag holder in recorded history. IMO it'll happen sooner rather than later. The only thing I find so amazing is that we still have so much going for us!