CURRENCIES

Tuesday brought a bout of fresh American dollar weakness. While the dollar index - measuring its value against a basket of currencies of its major trading partners - failed to touch a new low, it did look decidedly weak against the Australian dollar as well as the Canadian dollar. The commodity currencies were ignited by an unexpected tightening in monetary policy at the Reserve Bank of Australia. Both currencies rose to 13-month highs against the dollar.

We have encouraged readers of our Global Resources Alert to buy both of these currencies since July. Both currencies came within an ace of their respective targets in Tuesday's trading as investors accelerated a shift away from the dollar and into currencies at resource-plentiful nations.

On Tuesday the Reserve Bank of Australia decided after a slew of strong data depicting growth in retail store sales and jumping-bean like consumer and investor confidence that it was about time to take away the punch bowl. The RBA added one-quarter of a per cent to its baseline rates having spent the summer beating its chest in recognition that its economy was least affected by the ill-health suffered by the global financial market.

The move proved to be a game-changer. The decision was seen by many as revitalization of growth prospects. If the Australian economy was recovering, then much of the praise or at the very least the second-round effects lay with its major Pacific and Asian export markets.

Stocks around the globe rose making last week's losses appear to be the proverbial storm in a tea cup. Shares of energy and commodity producing companies gained most. Financial share prices also received a boost.

Yet the major winner on the day was the headline-grabbing gain in the price of gold whose spot bullion price rose to a record. October gold futures hit $1,044 per ounce intraday and reflected the fear element of a weaker dollar brought on earlier in the day.

For anyone who missed that news, a British newspaper carried a story that reported a conspiracy pact against the dollar by Persian and emerging country envoys whose intention over the next nine years is to cut out the dollar's influence altogether in the trading of crude oil. Reliable or otherwise, the story served to cut the dollar loose and provoked more and more investors to push its value lower in search of windfall gains.

The biggest takeaway that we see from Tuesday's price action is that investors are inspired by marginally positive news over global growth - arguably Australia created the rally in the S&P 500 index. In addition the market is clearly positive about dollar devaluation for whatever reason. We're unsure whether this is due to the assumption that energy or mining companies will earn more in the face of the combination of a lower dollar and stronger commodity prices. Or whether the weaker dollar is assumed to be a fastpass to economic recovery: Either way, markets like it.

 
The Supreme Council of the Secret Order of Jurojin

Tyche Research