Nine Reasons For Dollar's Rally

[GG]

http://www.cnbc.com/id/26091095

The dollar rally is reversing a major negative for the U.S. economy, which will benefit more from the increased purchasing power than will result from any loss of U.S. exports.

1) The Fed toughened up:

2) Economic growth is weakening globally:

3) Interest rate parity: Partly in response to signs of weaker growth abroad, the yield spread between foreign government bonds and U.S. Treasuries is narrowing.

4) Purchasing power parity: The price of identical items sold in the U.S. and abroad has moved out of kilter. The Economist recently noted with its Big Mac Index that the price of a Big Mac indicated that the Euro was more than 50% overvalued. While the index almost certainly overstates the misalignment, it is difficult to challenge the notion that the dollar looks cheap on a purchasing power basis.

5) Massive unwind of commodity-linked trades: Many investors are on the same side of the market in a wide variety of commodity-linked trades and it has begun to unravel.

6) Unwind of the de-coupling bet: Many investors have been betting on the idea that the global economy would be immune to the slowdown in the U.S. and many of the factors causing the slowing. Wrong.

7) Commodity drop is good for U.S. consumers

Change of U.S. leadership

9) The Batman movie is a smash everywhere, causing a huge capital flight to the U.S.!

[TulsaSooner]

Are we talking about Dollar Thrifty?  If so, good, because I've been expecting them to bail anytime now.

[GG]

quote:Originally posted by TulsaSooner

Are we talking about Dollar Thrifty?  If so, good, because I've been expecting them to bail anytime now.

Uh no, we're talking about the US Dollar.

[TulsaSooner]

Thanks for the clarification.

By US, did you mean our?

[cannon_fodder]

The dollar rallied strong to end the weak.  It would have REALLY taken off if the Euro Fed would have dropped rates.  But alas...

A tempered dollar is still serving our purpose.  If it remains week our industrial sector will continue to be strong and as it looks more attractive against other major currencies we should attract more capital (conversely, a weak US dollar has allowed cherry picking of US assets and companies for a relative bargain... a mixed bag).

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[OUGrad05]

quote:Originally posted by cannon_fodder

The dollar rallied strong to end the week.  It would have REALLY taken off if the Euro Fed would have dropped rates.  But alas...

A tempered dollar is still serving our purpose.  If it remains week our industrial sector will continue to be strong and as it looks more attractive against other major currencies we should attract more capital (conversely, a weak US dollar has allowed cherry picking of US assets and companies for a relative bargain... a mixed bag).

I am so glad that someone else on the forums understands this!

People ***** and moan about manufacturing jobs leaving, but now we have a substantial number of manufacturers opening or planning to open new facilities in the US because the dollar has weakened substantially.  The same people that support some of the overpaid union jobs that have since left, are among those preaching we must simultaneously have a strong dollar.  We can't have a strong manufacturing sector in the traditional sense with a strong dollar.  We can have specialized manufacturing, aka aircraft, computer chips etc, but its very difficult to have someone screwing a bolt on a car door making 35 bucks an hour plus benefits with a strong dollar.  

Ultimately we have to find a stable balance with our currency, the dollar in my opinion was way too strong at the end of the 1990s and early 2000's.  I feel the dollar is a bit too weak at the moment but 15 or 18 months ago I feel it was fairly balanced for good long term growth opportunities while at the same time mitigating inflationary pressures.  So if the dollar rebounds roughtly 15% I think it will be fairly valued and should continue to spur some strong growth in the manufacturing and export sectors.  I also feel the euro is over valued at the moment and we will probably see a 20% correct by the euro.  Couple the correction of the euro and the dollar together and you should get a fairly even parity between the two currencies.  I would expect the dollar to trade between 1 and 1.20 per euro in my ideal world.  Other economists have said .90 to 1.25 but I personally feel that swing is too wide.  A .9 to 1.1 would be ok, but would hurt the US manufacturing sector substantially at anything below even parity or 1:1.