Currencies | Aug 31 2009
By Chris Shaw
There has not yet been any official pronouncement, but in the view of CIBC World Markets the US now appears to be out of recession as its housing market is stabilising and financial asets have enjoyed a rebound in recent months.
Being out of recession means a recovery can be expected, but the pace of any upturn will be sluggish in the group’s view. CIBC points out the inventory re-stocking process will provide a once-only lift to growth. At the same time, government stimulus measures and exports won’t be enough to power strong growth as there will also need be a pick-up in job creation strong enough to allow currently debt-burdened consumers to join in the recovery.
Of late CIBC notes financial markets have established an inverse relationship between economic data and the US dollar, with any positive news tending to send the currency lower. Such a relationship can’t persist in the group’s view as it poses risks to the US’s trading partners given they would be stuck with strong currencies at a time when their own export sectors remain relatively weak.
As an example of such a nation, CIBC points to Canada, while suggesting the other major commodity exporting nations such as Australia are in a similar position as their currencies have risen strongly against the US dollar in recent months.
In the group’s view this sets up a situation where any disappointment with respect to global growth outcomes over the remainder of 2009 could see the market cool somewhat on its recent enthusiasm for the commodity currency block, so causing a short-term bounce in the US dollar.
Longer-term the group expects the US dollar will weaken because the US needs this to happen to allow exports to pick up and make up the difference from weaker growth contributions from both housing and consumption. Before this can occur however, CIBC suggests there is a need for the global economy to make further positive progress as this would allow other economies to carry the load with respect to further currency appreciation.
