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Dollar exchange - the mysteries of finance world


Paul Mihalka

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In the last couple of month the U.S. Dollar improved it's value from a low point by roughly 20% against the Euro, Pound-Sterling, Canadian Dollar. Why? I thought all the deficit spending of a trillion here and a trillion there will lower it's value. Are the other countries printing more money than we are?

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I don't think it's that the dollar has gained as much as the other currencies have lost. I know that's sort of a semantic game, but the movement has been more in their currencies.

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The pound has tanked because of lowering interest rates in an attempt to mitigate the (inevitable) recession, plus record levels of govt borrowing, plus printing money to nationalise banks.

 

Same old stuff really.

 

Andy

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The pound has tanked because of lowering interest rates in an attempt to mitigate the (inevitable) recession, plus record levels of govt borrowing, plus printing money to nationalise banks.

Yes, a lowering tide sinks all boats. The same factors that have been hammering the dollar also affect other currencies, and other (smaller) economies are affected all the more. It would appear that the dollar's problem was only a leading indicator.

 

It's great that a European vacation is becoming more affordable... if anybody can now afford it... :smirk:

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Some of the other currencies were perhaps overinflated and the bailouts and reactions from the EU and the UK are showing their affect.

 

It's my understanding that the currency somewhat reflects the overall value of that nations economy. So although the US has dropped in value.... there are concerns that the EU, UK and Japan pose possibly even greater risks in a global downturn. Thsoe economies relies more heavily on services, toruism, light manufacturing. The US still has quite a bit of heavy industry, raw materials, and natural resources that can help insulate it during economic slowdowns. For example, people still need to eat. Europe and the UK improt a large protion of those products and therefore must match those in exports. Meanwhile that segment of the US won't be heavily affected in bad times.

 

The Japanesse automakers for example have already announced domestic production cuts due to reduced demand, particularly for luxury vehicles.

 

 

Thsi is at least how I see it. I'm sure it's far too simplified and the real reason has something to do with the bond market and the treasury department of each nation.

 

Keep in mind people are still deleveraging into dollars as the stock market continues to look risky. The question is, as things get worse, what is more likely to maintian it's value the Euro or the Dollar.

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The drop in the Canadian dollar vis-a-vis the American dollar has been attributed mainly to the drop in commodity prices, particularly oil. We export significant quantities of oil (mainly to the U.S.) and other commodities like potash (for fertilizer), metals etc. Most, if not all, have dropped dramatically in price of late. There have been no bank bailouts here, but interest rates are going down, and that's part of the reason as well. Exporters love a falling dollar, but individuals who travel outside the country do not, for obvious reasons.

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The pound has tanked because of lowering interest rates in an attempt to mitigate the (inevitable) recession, plus record levels of govt borrowing, plus printing money to nationalise banks.

Yes, a lowering tide sinks all boats. The same factors that have been hammering the dollar also affect other currencies, and other (smaller) economies are affected all the more. It would appear that the dollar's problem was only a leading indicator.

 

It's great that a European vacation is becoming more affordable... if anybody can now afford it... :smirk:

 

My parents just came back from a 11 day trip up [or was it down] the river Sienne because they got such a great deal on it.

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In times of unmitigated disaster, safety is at a premium even over value. There is nothing safer than the U.S. government........As bad as it is, there is no safer game in the world.

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It's great that a European vacation is becoming more affordable... if anybody can now afford it... :smirk:
Sure ... why not. Just put the whole thing on your credit card! :/:dopeslap::grin:
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John Ranalletta

From John Mauldin's, "Outside the Box"

Ukraine's government is scrambling for dollars and euros - both to back its currency and to cover the maturing foreign currency borrowing of its banks.

 

Pakistan's government needs dollars.

 

Korean banks are scrambling for dollars.

 

As are Russian banks. And Kazakh banks. And Emirati banks.

 

In many of the oil exporters, the government was building up foreign currency assets (reserves, sovereign wealth funds) while the private sector (including many firms with close ties to the government) were big borrowers from the international banking system. In the Emirates there is an added complication: Abu Dhabi was the emirate building up its external assets, while Dubai was the emirate doing the most borrowing.

 

But across the emerging world, external bank loans have dried up - creating a scramble for foreign currency liquidity.

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The drop in the Canadian dollar vis-a-vis the American dollar has been attributed mainly to the drop in commodity prices, particularly oil. We export significant quantities of oil (mainly to the U.S.) and other commodities like potash (for fertilizer), metals etc. Most, if not all, have dropped dramatically in price of late. There have been no bank bailouts here, but interest rates are going down, and that's part of the reason as well. Exporters love a falling dollar, but individuals who travel outside the country do not, for obvious reasons.

Yes, but for once I manage to be on the right side of the equation as I move $$ from my US accounts to Canadian ones, post our move. At the moment I'm making an instant 20% with every transfer. 'Course it's only a once in a lifetime (presumably) opportunity, but hey, I'll take it!

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It's been quite a few years since my macroeconomics class, but I recall the predominant influence of monetary exchange rates can be related to net import of goods and commodities. If the US imports more than it exports to a given country, the $ should decrease relative to the currency of the exporting country. And that is what has been driving the US dollar down the last several years. The driver of this devaluation ultimately is a function of currency supply & demand.

Now, why has the dollar exchange increased in recent months -- I don't believe it's that we find ourselves exporting more, but (more likely) that the economic downturn is reflected in our 1) importing less goods from overseas and 2) a reduced demand for imported oil.

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John Ranalletta
The drop in the Canadian dollar vis-a-vis the American dollar has been attributed mainly to the drop in commodity prices, particularly oil. We export significant quantities of oil (mainly to the U.S.) and other commodities like potash (for fertilizer), metals etc. Most, if not all, have dropped dramatically in price of late. There have been no bank bailouts here, but interest rates are going down, and that's part of the reason as well. Exporters love a falling dollar, but individuals who travel outside the country do not, for obvious reasons.

Yes, but for once I manage to be on the right side of the equation as I move $$ from my US accounts to Canadian ones, post our move. At the moment I'm making an instant 20% with every transfer. 'Course it's only a once in a lifetime (presumably) opportunity, but hey, I'll take it!

If, for example, the US$ is exchanged for C$1.20, do you really get 20% more goods or service; or, is the differential priced in?

 

Also, if currency is a commodity, did you sell early?

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In times of unmitigated disaster, safety is at a premium even over value. There is nothing safer than the U.S. government........As bad as it is, there is no safer game in the world.

 

+1.

Selling Euro's Pounds, Yen and you name it and buying those greenbacked "U.S.Saftey Tickets" with presidential portraits.

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If, for example, the US$ is exchanged for C$1.20, do you really get 20% more goods or service; or, is the differential priced in?

 

Also, if currency is a commodity, did you sell early?

Cost of most goods are definitely higher in Canada. But I look at it this way – for something I need to buy (e.g. groceries), I could spend my earned Canadian dollar that is worth one Canadian dollar, or I could spend my imported US dollar which is (today) worth 1.28 Canadian dollars. Clearly my US dollar will buy 20% more in Canada than my Canadian dollar will.

 

Were I comparing purchasing the same item in the USA vs. in Canada; then the delta of cost of the item would be a factor. But for day-to-day purchases in Canada, I have no choice regarding the cost of the goods. Only which dollar, US or Canadian, I spend for them.

 

Not sure what you are asking by, sell early?

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John Ranalletta
In times of unmitigated disaster, safety is at a premium even over value. There is nothing safer than the U.S. government........As bad as it is, there is no safer game in the world.

 

+1.

Selling Euro's Pounds, Yen and you name it and buying those greenbacked "U.S.Saftey Tickets" with presidential portraits.

...but, what if it's just another bubble?
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In times of unmitigated disaster, safety is at a premium even over value. There is nothing safer than the U.S. government........As bad as it is, there is no safer game in the world.

 

+1.

Selling Euro's Pounds, Yen and you name it and buying those greenbacked "U.S.Saftey Tickets" with presidential portraits.

...but, what if it's just another bubble?

 

 

Well, I thnk if hte dollar collapses competely... the whole world is pretty much screwed and we're rolling back to a basic barter system. If you think that's a reality... then just like Y2K.... it's time to stock-up on cigarettes and booze to use as currency.

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John Ranalletta
In times of unmitigated disaster, safety is at a premium even over value. There is nothing safer than the U.S. government........As bad as it is, there is no safer game in the world.

 

+1.

Selling Euro's Pounds, Yen and you name it and buying those greenbacked "U.S.Saftey Tickets" with presidential portraits.

...but, what if it's just another bubble?

 

 

Well, I thnk if hte dollar collapses competely... the whole world is pretty much screwed and we're rolling back to a basic barter system. If you think that's a reality... then just like Y2K.... it's time to stock-up on cigarettes and booze to use as currency.

Not necessarily IMO. Currency is a commodity and the price will ebb and flow with supply and demand. The US$ is in high demand today, but might and probably will depreciate unless the Treasury raises interest rates. I don't know when the tide will turn, but likely, the Yen, Yuan and Swiss Franc will shine against the US$.
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Not necessarily IMO. Currency is a commodity and the price will ebb and flow with supply and demand. The US$ is in high demand today, but might and probably will depreciate unless the Treasury raises interest rates. I don't know when the tide will turn, but likely, the Yen, Yuan and Swiss Franc will shine against the US$.

 

IMO the Dollar will continue on it's rebound as long as the interest rates are low enough to make borrowing for domestic and international investments as attractive as possible. Combine this with further uncertainty in economies outside of the U.S. and it magnifies the solidity of the USD. I will be looking for the magic in the 1st quarter of 2009. I'm not an economist, just putting in my own 0.02 USD.

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The drop in the Canadian dollar vis-a-vis the American dollar has been attributed mainly to the drop in commodity prices, particularly oil. We export significant quantities of oil (mainly to the U.S.) and other commodities like potash (for fertilizer), metals etc. Most, if not all, have dropped dramatically in price of late. There have been no bank bailouts here, but interest rates are going down, and that's part of the reason as well. Exporters love a falling dollar, but individuals who travel outside the country do not, for obvious reasons.

Yes, but for once I manage to be on the right side of the equation as I move $$ from my US accounts to Canadian ones, post our move. At the moment I'm making an instant 20% with every transfer. 'Course it's only a once in a lifetime (presumably) opportunity, but hey, I'll take it!

 

I remember the first time we took our boat to Canada. I thought I had died and gone to heaven. $1.48 Canadian for each $ US.

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Yes, but why?

 

The dollar is still considered a safe bet. Look at what's happening in Russia at the moment, for instance. The Russian central bank refuses to let the rubel float--if they did, it would drop like a rock. Everybody with any money in Russia is scrambling to exchange it for dollars, knowing this will happen. The huge national stockpile they've built is dwindling quickly, oil prices are dropping, and the richest magnates are being forced to sell holdings to meet margin calls.

 

The Russia that only last month seemed bent on another round of world conquest is looking crippled, along with their currency. It may be bad here, but it's still a picnic in comparison.

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