FYI | Apr 06 2006
The US dollar took a tumble yesterday against every one of its major and minor trading partners, bar one (sorry New Zealand). This was due not to a singular event/announcement, but more to a rolling series of offhand remarks.
Gartman puts the blame squarely at the feet of US Senators Graham and Schumer, hinting that their economic ignorance shows through in their stringent campaigning for tariffs and trade protection. This has set in trail a succession of comments from central banks suggesting US dollar reserves will be, or are being, reduced in favour of “other assets”.
Gartman had been expecting this anyway, but it would appear a bit of good ol’ American parochialism has followed the Dubai port snub, and this has served to speed up the process.
It was likely this catalyst that led to the governor of the Central Bank of Qatar offering that the bank may shift to a 40% holding of reserves in euros. Gartman says of the statement: “It was precise, it was unambiguous and it was devastating”.
This was followed by another remark from a “relatively minor” Chinese official that China would not start selling US dollar assets, but would simply no longer buy them. Those held would be allowed to mature, but not be replaced.
Over to you Chairman Bernanke. Could a falling US dollar increase the chances of Fed tightening beyond the consensus stopping point of 5.00%?
In the meantime, local observers suggest the Aussie should continue to fall based on the interest rate differential, but it may also ride back up on a wave of global US-bashing.