Taking a longer view, over the last two decades, the fact that the value of the US dollar has been broadly unchanged, while the US dollar’s share of global reserves has declined, indicates that central banks have indeed been shifting gradually away from the dollar.BNE
IMF: Dollar’s "stealth erosion" in global reserves by other currencies
Serkan Arslanalp for the IMF, Barry Eichengreen, Chima Simpson-Bell
The weekly and monthly charts of crude v's $ shows what's going as you can witness the headline news moves.
ReplyDeleteAs we know zombies move on headline news, zombies move on the FED when it farts. The day traders will jump on anything like a bitch on heat to try and make a buck.
So you get episodes intra day and weekly when the zombies move the $ away from the oil price. But sure enough no matter how many times the zombies have a brain freeze the $ will move back to track the oil price.
The monthly chart shows it beautifully. Just look at how the zombies moved the $ during the FED speak and then looks at what happens.
Can take 3 or 4 days, can take 24 hours or sometimes without any headline news will walk side by side.
To be able to bet on the $ index movement, you use Mike's zombie trading technique. Wait until the zombies have a head freeze and move the $ away from the oil price and pounce.
That's what I am going to try to do. If you already have a rough idea whether oil is bullish or bearish that's even better.
You have the safety of the 1 year chart and 5 year chart that shows you are doing the right thing.
ReplyDeleteLooks like you're talking about the Dixie.
ReplyDelete"It is a weighted geometric mean of the dollar's value relative to following select currencies:
Euro (EUR), 57.6% weight
Japanese yen (JPY), 13.6% weight
Pound sterling (GBP), 11.9% weight
Canadian dollar (CAD), 9.1% weight
Swedish krona (SEK), 4.2% weight
Swiss franc (CHF), 3.6% weight"
Meanwhile, foreign holdings of US "debt" (dollars) are at an all-time high.
ReplyDeleteYes, dollar holding are strong internationally — excepting by central banks. The post is about cb's.
ReplyDeleteCb's have been decreasing their USD reserves and increasing gold reserves.
The "explanations" for this include growing US deficits along with increasing public debt, inflation, and global instability — depending on who one listens to.
Cb behavior has been diverging from other behavior for some time.
Look what happened using the monthly chart.
ReplyDeleteYou can see the brain farts after the FED speak.
They dropped the $index from 105.20 to below 104.40. All on the back of FED speak.
Meanwhile the oil price continued to rise. While the zombies were having their head freeze.
Sure enough within 2 days the $ index was back above 105.60
and following the oil price.
It always does this now.
What should the central bank of an exporting country be holding in case they need to defend an exchange rate?
ReplyDeleteNothing that's fixed exchange rate thinking.
ReplyDeleteFor a country to have excess exports it has no choice but to save other currency denominations to excess. Otherwise its own currency goes sky high and kills the excess exports. This is why there are ‘sovereign wealth funds’ and huge hoards of currency and financial assets held by offshore entities. They are a consequence of excess export policies across the world and the currency management that enables them to exist.
If they froze Norway's sovereign wealth fund, like they have with some of Russia's sovereign wealth fund. It would harm Norway as much as it has harmed Russia. Very little.
If you ban UK exports to your nation, or you refuse to take them, or you put extra taxes on them, or you refuse to buy Sterling assets then that means you have to save more Sterling if you want to continue to export to excess to the UK.
for every excess import of goods and services into a currency zone there has to be a corresponding external sector held asset denominated in the currency of the import zone. One cannot exist without the other. It is a simultaneous requirement in a floating system.
A wise central bank understands that is the responsibility of the other central bank with the high currency value and an excess export policy to decide what they want to do.
Why China always tried to devalue. Generally it means export your way to growth countries are left with the tough choices.
In order for exporters to keep their market share because their exports have become too expensive. Consumers buy cheaper local products instead.
They can cut wages, cut their staff, cut hours worked or cut their prices. When they cut their prices this moves the floating rate in the direction they want it to move - lower.
See the Irish after the Brexit vote. They exported to the UK and when the £ plummeted and the Euro soared. Irish exporters were in trouble and some went bankrupt. Never mind lose some of their market share.
Why exporting your way to growth is a dangerous game and should be avoided.
MMTers tend to view imports as a net gain, orthodox believers see exports surpluses as a virtue.
ReplyDeleteOkay then, your virtue is our gain.
For a country to have excess exports it has no choice but to save other currency denominations to excess.
ReplyDeleteIn exchange for material goods and services, exporters are forced to accumulate numbers. Numbers that lose value when economies tank.