US DOLLAR RUN MAY BE NEARING ITS END
ONE OF THE REASONS why emerging markets, such as South Africa, are under pressure is because international investors – fearing a collapse of the world’s financial system – are trying to reduce their risk by switching to US-dollar investments. The irony is that the country where the current crisis started is still regarded as a safe haven for capital in times of emergency.
The money that’s invested especially in US Treasury bonds – despite low returns – has resulted in the greenback strengthening since July, as shown by the graph of its exchange rate against the euro, the world’s other major currency.
That started from a double top reversal formation (indicated by the arrows), but when the support level around US$1,35 was reached there was a slight recovery. The following important support level is at $1,25, a difference of about 7,4%. That could indicate the dollar’s run is nearing its end, which of course coincides with the hope that the measures introduced by the governments of the world’s large industrialised nations will succeed in restoring confidence.
If that happens it is possible that capital will return to the emerging markets, attracted by higher interest rates as well as the bargains described by Mark Mobius of the Templeton Group as reported elsewhere on this page.