Commodity Currencies And Carry Trade
Only Two Currencies Have Any “Real Interest Rate” to Speak Of!
My Top Three Picks for the “First Rate Increases”
Australia has 2.5% YoY inflation. So, in my opinion, they will hold rates steady for now. They really can’t do much else. If they lower rates, they would risk stoking more inflation. I also believe that they will be among the first to raise interest rates when the time comes. In fact, raising could actually be only months away at this point.
New Zealand’s inflation is almost 2% and the U.K. is close to the same as well. So both countries are in my “top three” candidates to raise interest rates as the global economy continues to recover.
Therefore, these are some of the top holdings you should consider. Also, as commodities continue to firm up, it will only help Australia and New Zealand all the more.
You’ll notice that the Eurozone is almost flat (almost no deflation or inflation…yet there is “mild deflation” that does exist). The European Central bankers probably believe any recovery will pull the country back into an inflationary cycle without further rate cuts.
The VERY Last On My List…
By the way, note how bad deflation has taken hold in the United States. As a result, the dollar has been pulverized lately. Frankly, I’m still bearish on the buck going forward.
The “fear cycle” is now over that helped the greenback. Now that investors are turning back to the true fundamentals once again, the buck becomes the ugly duckling of currencies yet again…with Japan and Switzerland not far behind!
This is yet another reason why I DON”T believe that the U.S. dollar will prosper upon an economic recovery. Because, in the currency world…it’s not “are you recovering” but “who’s recovering the best.” In other words, it’s always a comparison game.
Australia is already starting off better and currently has inflation. So why wouldn’t the Aussie continue to rise as inflation rises, GDP growth increases and rate increases power it ahead …while the buck finally pulls back in inflationary mode later on? It would!
Therefore, I see the “commodity dollars” powering ahead of the U.S. dollar and yen and Swiss franc as the global recovery continues. In other words, the carry trade is back.
By Sean Hyman - www.worldcurrencywatch.com
Tags: carry trade, central bank, central bankers, commodities, commodity, currencies, Currency, deflation, dollar, economy, euro, gdp, Gdp Growth, global economy, inflation, interest, interest rate, interest rates, investor, investors, risk, swiss franc, yenPosted in
