Sean Hyman
Contributing Writer
instructor@mywealth.com
Lately, it seems that governments are watching the charts and then slamming the dollar at the most opportune times.
For instance, the U.S. Dollar Index topped on March 4th at approximately 89.63. Ever since then, it’s been tanking overall, despite Obama & his puppet, Geithner saying that we have a “strong dollar”. Take a look at it below.
Obama had better stick to his “day job”!
Russia & China love to kick the Dollar when it’s down!
Since the dollar peak AND the break of the U.S. Dollar Index’s break of the uptrend line, China and Russia have been gripping about the dollar and how we need a new reserve currency.
It’s almost like they waited for the “opportune time” to take a stab at the greenback once the trend broke. Think this is coincidental? I think not!
They’ve waited for the U.S. borrowing to undermine the greenback before making their move. After all, both of these countries are gunning for the “king of the hill”.
Russia’s president stated yesterday that it may discuss his proposal to create a new world currency when he meets with Brazil, India and China (BRIC nations) on June 16th.
He made this proposal at the last G-20 meeting in April. However, the idea wasn’t entertained there because they had “bigger fish to fry” at the time with the world economy still being quite shaky.
Russia’s comments are coming at a time when small central banks have to sell some dollars so that they don’t risk being hurt as the dollar broke its uptrend and crumbles further. The larger central banks can handle the gyrations better than the smaller ones.
Russia is also trying to “help its own cause”. In November, it was reported that they now hold more Euros in reserves than dollars. Their dollar reserves decreased from 45% down to 41.5% while their euro reserves climbed from 44% up to 47.5%. Amazing how they made that shift before they started all of this “talk” huh? It’s almost like they were trying to help themselves out too!
The Russian president told CNBC on June 1st that “we need a universal means of payment. It’s our idea, and our Chinese colleagues support it”.
China conveniently “Tag Teams” with Russia!
Amazingly, as Russia commented on June 1st and 2nd. China’s former central banker, Yu, also decided to chime in on the 2nd. He was quoted as telling Geithner, “The U.S. shouldn’t be complacent about China continuing to buy Treasuries. Don’t think that there is no alternative to your bills and bonds. The euro is an alternative. And there are lots of raw materials we can buy.”
I don’t know how much plainer they could have been!
China finally starts flexing its muscles as it has become the 3rd largest economy in the world and the 2nd largest energy consumer in the world.
They have for sure stepped up their purchases of raw materials as a way to hedge themselves vs. a falling dollar. So it wouldn’t surprise me if they add Euros into the mix as well.
While I hate it that there is such a “disdain” out there for the buck…I must say, I have to agree with China’s concerns.
Yu went on to say that, “It’s very natural for the world to be concerned about the U.S. government’s spending and planned record fiscal deficit.
While Geithner has stated that the Obama administration plans to reduce the fiscal deficit to roughly 3% of GDP down from a projected 12.9% of GDP currently, Yu added…”It may be helpful if Geithner can show me some arithmetic. We need to know how the U.S. government can achieve this”.
Well, I’d have to say I have the same concerns and doubts. And it’s not just me doing all of the “doubting”. You’ll remember that recently, even one of the major rating services talked about lowering the U.S. credit rating from its current AAA status.
So you can see why Russia, the former Chinese central banker and the present Chinese central banker (Zhou) are all calling for the creation of a “new international reserve currency” or “supracurrency” as Russia put it.
The bottom line: All of this produces doubt and a negative sentiment on the dollar. It’s like a “black cloud” over its head at a time when the dollar really could use every break it could get.
This negative sentiment will continue to weigh down the dollar over the next year or two as the fundamentals behind the dollar continue to erode. Any time you print tons of excess money, increase debt and job losses and decrease personal savings…you know the dollar will have issues.
The Aussie, Kiwi and Euro to benefit as the Buck falls!
Therefore, all of this “ganging up” on the dollar at a time like this will only keep the trend pointed downward for the greenback and will boost currencies like the Australian dollar, New Zealand dollar and the euro against it.
While there will be pull backs along the way, the trend for AUD/USD, NZD/USD and EUR/USD are likely “up” and not “downward”.
The shift has happened. Many out there will not realize it until way later after their accounts have suffered severe losses. Why? Because for the last year, the theme was “dollar buying” and a dollar uptrend. Retail traders are slow to realize and accept new trends. They usually won’t wake up to that fact for months. Therefore, this will take a toll on them…but it doesn’t have to take a toll on my readers.
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