Sunday, April 30, 2006

The Sliding US Dollar

David Smith writes today in The Times of London, quoting Tony Norfield of ABN Amro that the decline of US dollar may now be underway. "The dollar has embarked on a big decline that will see it fall against all leading currencies, according to analysts. The plunge is being prompted by America’s $800 billion (£438 billion) current-account deficit, they say." [...]"The euro has already risen to an 11-month high of more than $1.26, while the dollar is at a three-month low of 113.70 against the yen. The Canadian dollar, known by traders as the “loonie”, rose to a 28-year high on Friday, boosted by a hike in Canadian interest rates. "

If this chappie is correct, tighten your seat belts, the ride could get very choppy it the US Reserve doesn't handle this well.

No telling what it could mean for new home construction in the US. If new home construction slows dramatically enough then the cost of US lumber drops and all bets about new trade agreements are off.

But then again, if the Reserve doesn't manage the fall of the dollar well more bets than just those related to softwood could be off.

At this point it probably wouldn't take much for OPEC to announce a change to EUROs or China to announce they're not buying any more USD.

Could be very unpleasant for a while.

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