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Posted by on Feb 16, 2016 in Market Insight

The World Wants “Dollars”

February 16, 2016

Dennis Gartman is editor and publisher of The Gartman Letter, and strategic advisor of the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN). He regularly contributes to AlphaBaskets and lends his institutional insight to educate advisors and investors about commodities and the forex markets, including about trading gold in different currency terms.

The forex world looks kindly upon North America today as the US dollar, the Canadian dollar and the Mexican Peso are all strong relative to the Yen and to the EUR… but not materially so; modestly so. Indeed, perhaps it is best to say that the forex world is looking kindly upon the oil producing nations, for the Russian Ruble too is a bit firmer and for that matter so too is the Brazilian Real…all of which are benefitting from the news that the Russians, the Saudis, the Venezuelans and other OPEC and non-OPEC countries alike are meeting today in Doha, Qatar to discuss the circumstances in the oil market. We write about this at length below but suffice it to be said that there shall be a chasm as always between a meeting such as this and any final decision regarding production cuts. Indeed, there shall be a chasm between any agreement reached and any real adherence to that agreement. However, for now, crude oil prices are strong and the forex market is paying homage and heed to that fact, bidding upon the currencies of the oil produces and offering down the currencies of the oil importers…modestly.

Yesterday in our commentary we noted that the world wanted “dollars” generally, for the US, the Canadian, the Aussie and the “kiwi” dollars were all bid up and bid for. However, that is not the case this morning for the “Kiwi” is under some pressure… not only relative to the US and Canadian dollars but relative too to its closest “cousin,” the Aussie dollar… following a report from the RBNZ that inflation expectations there have fallen rather sharply too just barely above 1.0% from 1.5% previously amongst those New Zealanders surveyed. The RBNZ is suffering from the same monetary “disease” that most other central banks are suffering from: a wish to spawn an inflation and the inability to do so. The RBNZ is no different than the BOJ or the ECB or the Fed for that matter. All want an inflation of some sort, but all are getting either dis-or-deflation instead.

Turning to China, on the second day back from the long Lunar New Year holiday the Renminbi has fallen back from the very serious strength it showed yesterday on the first day back. As noted, despite “The Donald’s” attacks upon the Chinese for their supposed downward manipulation of their currency, the Renminbi rose very sharply yesterday, moving from 6.5750 Rmb/$ last week to $6.4940 yesterday… a 1.1% move. As we have said countless times before, in the forex market a move by one currency relative to another of more than 1% in a single day is quite material and usually worthy of some note. We do not doubt for a moment that the Chinese authorities were indeed in the market to strengthen the Renminbi if only to send a signal to the US presidential circles that the currency remains strong and that what Mr. Trump has been saying is wrong indeed. This, however, is our thesis only; few others share it.