Dol­lar could climb higher in 2015

Financial Mirror (Cyprus) - - FRONT PAGE -

Re­cently, it seems that there’s been a non-stop flow of news con­firm­ing the grow­ing strength of the US dol­lar. After Black Fri­day’s shop­ping frenzy last week, this Fri­day’s em­ploy­ment data re­vealed a surge of over 300,000 new jobs cre­ated, the high­est fig­ure in monthly non-farm pay­rolls since Jan­uary 2012.

The pos­i­tive data from the States has en­cour­aged spec­u­la­tion that the Fed­eral Re­serve, the coun­try’s pow­er­ful cen­tral bank, could raise in­ter­est rates sooner than ex­pected. Read­ing the signs, most banks are an­tic­i­pat­ing that the dol­lar will climb even higher against its ma­jor peers in the year ahead. But while the US re­joices with the ap­proach of Christ­mas, the dol­lar’s gains doesn’t nec­es­sar­ily trans­late to happy faces ev­ery­where.

The Bank for In­ter­na­tional Set­tle­ments has warned about the fragility of the emerg­ing mar­kets such as China and In­dia. Many emerg­ing economies have be­come in­creas­ingly re­liant on USD loans. Since the end of 2012, dol­lar loans to China have dou­bled in size to a stag­ger­ing $1.1 trln. Yet as the dol­lar ap­pre­ci­ates, the debts are be­com­ing harder to pay back, putting the de­pen­dent na­tions and cit­i­zens at risk of de­fault.

The fore­bod­ing warn­ing from BIS came as China re­leased dis­ap­point­ing trade fig­ures on Mon­day, im­pact­ing neg­a­tively on the Aussie dol­lar and the New Zealand kiwi. Both economies are big trad­ing part­ners of China and are sen­si­tive to its af­fairs and for­tunes.

Also on Mon­day, the MSCI broad in­dex of Asia-Pa­cific shares, ex­clud­ing Ja­pan, fell 0.25 dur­ing Asian trad­ing hours, and the dol­lar reached a seven-year high against the Ja­panese Yen. How­ever, many an­a­lysts are un­sure just how much more room there is for this cur­rency pair to move. Much will de­pend on Ja­pan’s gen­eral elec­tion on De­cem­ber 14. We’ll have to wait and see if Prime Min­is­ter Shinzo Abe will win another term for his “Abe­nomics” poli­cies, aimed at weak­en­ing the yen and sup­port­ing the ex­port-driven econ­omy.

Per­haps more pre­dictable than the price of the yen is the drop in gold. If you follow the waves of the mar­kets, you’ll know that as a gen­eral rule, gold is in­versely cor­re­lated to the US dol­lar. The pre­cious metal has tra­di­tion­ally served as a safe haven for in­vestors in time of mar­ket in­sta­bil­ity, and vice-versa as we’re cur­rently wit­ness­ing. If the dol­lar con­tin­ues to strengthen, gold will con­tinue to lose its hedge ap­peal.

Amid such data, the an­a­lysts here at Banc De Bi­nary will cer­tainly be watch­ing the Asian na­tions and com­modi­ties mar­kets for fur­ther clues about their sta­bil­ity as we en­ter the New Year. Mixed eco­nomic sig­nals aren’t au­to­mat­i­cally neg­a­tive, but you do need to un­der­stand them and see the big global pic­ture.

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