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Daily Forex
Commentary
By Jack Crooks
Key News
Australia's center-right coalition government Wednesday unveiled
larger than expected tax cuts in a bid to head off the slowdown in an economy
that is set to record its lowest rate of growth for more than a decade this
year. (FT)
China's exports would contract sharply if the value of the Chinese yuan rose, a
government report said, in the latest apparent signal that Beijing is not about
to make any major changes in its currency policy. (AP)
Real wages in the United States are falling at their fastest rate in 14 years,
according to data surveyed by the Financial Times. (FT)
Under the American Jobs Creation Act passed last fall, US companies that bring
home accumulated profits earned and invested abroad will pay an effective rate
of 5.25% on them; the standard corporate rate is 35%. (WSJ)
Key reports due Wednesday (WSJ)
8:30am: March Trade Deficit. Consensus: $61.5 Bln. Previous: $61.0 Bln.
Quotable
"A father said to his
double-seeing son, 'Son, you see two instead of
one.' 'How can that be?' the boy replied. 'If I
were, there would seem to be four moons up there
in place of two.'"
- Aldous Huxley, The Doors of
Perception
FX Trading
Wednesday we see the US Trade Deficit report for March. Many traders are
placing bets on the number. Will it be under or over? If over, maybe it means
the Currency Account deficit concerns will be back in play for dollar bears. If
under, well...
Either
way you see it, it's another one of those numbers that seems to us only a
small piece of the puzzle, and we don't think it is much of a driver of the dollar
here. In fact, we have never believed trade deficits were ever much of an
indicator for trading the dollar - it's just not reliable. And if an
indicator is not reliable it falls into the random category, along with
sunspots.
Why do
we say it's not a reliable indicator for the dollar? Simple, we look at the pictures!
Below you can see the US Trade Balance in Goods and Services compared to
the US dollar index - not much of a correlation there I don't think:
If the dollar falls Wednesday, you can be sure one of the key reasons assigned
by the assembled punditry will be the trade deficit - and so it goes.
On second thought, we could see cause and effect on a bad trade number
Wednesday. A bad number would cause more howls for Chinese revaluation from our
political "leaders".
This thought leads to another rambling thought about what I have been hearing
lately. Many are now tired of the on-again and off-again slated revaluation of
the Chinese currency. So a theme seems to be developing: "Buy gold on dips as a
way to play the revaluation." It's probably easier/safer than trying to sell
$-yen here (but who knows when a dip is the beginning of a plunge). But even
assuming we know what a dip is, there's always that lingering big but out
there, take a look at the next somewhat convoluted chart to see what I mean:
Yup! As gold (blue line) has risen, $-yen (red line) has fallen. So if $-yen
falls on revaluation, gold goes higher. Maybe! Notice also on this chart that
oil (black line) seems to be moving in tandem too with gold. But, what if
revaluation triggers a slowdown in Chinese exports as some are warning, as in
the AP story Wednesday morning?
"Export growth would slow to below 10%, down from more than 34% last year, even
if the yuan appreciates by only 3% to 5%, said the report by Zhai Zhihong, a
senior official at the National Bureau of Statistics.
"If the yuan's value were allowed to rise by up to 15%, as some have
speculated, China's exports could 'contract by a rather large amount',' Zhai
wrote in the report, viewed on the bureau's website Wednesday."
If Mr Zhihong is right about the revaluation's impact on China, we shouldn't
assume crude or gold or any other commodity will rally as a result. But, who
knows if Mr Zhihong is right. There we go again, placing our bets on a thread
of limited information about the future. It's more validation to prove markets
are about expectations - and have little to do with reality. We see what we
want to see.
Jack Crooks has actively traded in global equity,
fixed income, commodity, and currency markets for more than 20 years. He is
president of Black Swan Capital, a currency and commodities market advisory
firm - BlackSwanTrading.com
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