Outlook for USD

[rtforu]

I have always believed that the USD would someday make a comeback however I am starting to have doubts. I listened to a web interview with Warren Buffet the other day, I know that trying to predict the direction of currencies is difficult but I reckon a guy like Buffet would probably be better at it than most.

Anyway, he thinks the USD dollar will decline further over the longer term and will be worth substantially less in 10 years time. Bad news for people not planning to retire in HK or USA.

[hongkongfooey]

Could somebody explain to me again why the hell we are tied to the US dollar and not RMB
404, NC

[Numero Crunchero]

The HKD is fully convertible whereas the Yuan is not so these two currencies cannot be pegged at the moment. Whilst China is acting more and more like a capitalistic society on a personal enterprise level, it is still a communist country at the national political level. The Chinese government is reluctant to forgo control of capital flows to foreign interests. Many financial 'experts' suggest the Yuan will be fully convertible in the next 2-3 years at which point it seems to make no sense having the HKD pegged whilst the Yuan floats!


I am sure 404 will give a better answer;-)

By the way, I remember seeing a study on FOREX forecasts made by market professionals - they were wrong just over 50% of the time. But I must admit to putting more weight on the Oracle of Omahas' missives!

[Arfur Dent]

Isn't that 'Sage of Omaha' ?

[willnotcomply]

It is the "Oracle of Omaha".

[Shep69]

The USD will fall until the Fed decides to stop printing up $ to cover private and public debt--9 trillion and going up on just the public side--and the U.S. develops currently available energy resources which are independent from oil.

Then it will climb again.

[On the beach]

It's to be hoped that OPEC don't decide to price oil in Euros rather than $$s, which is a distinct possibility.

On the beach

[AAIGUY]

Look , it's this simple (note.. I have been buying gold since 600/oz)

US is PRINTING money secretly. They used to have to publish what was called M3 ( the amount of new currency produced). About 4 years ago (GULF WAR 2??? coincidence?) they stopped.

Now they have to pay for War et all on a decreasing tax base. They have reduced interest rates as much as possible, still cannot support dollar.

Dollar is soon to be worthless internationally. Not being alarmist, but simply you need to understand what has occurred. Expect HKD to depart peg within 24 months.

[Frogman1484]

expect a widening of the peg before that or we will have double digit inflation with an asset bubble, just like 1997 Asian Crisis!!

[rtforu]

AAI, you are correct. As Buffett put's it, The US is forcing 2 Bill a day down the throat of the rest of the world! You can't keep doing that and not expect a devaluation of the currency.

[On the beach]

Or as Bush will probably say:

"Yesterday we stood on the edge of the abyss. Today we took a giant step forward"

On the beach

[404 Titan]

hongkongfooey

Sorry for taking so long to reply. As Numero Crunchero has said the HKD isn't pegged to the RMB and won't be for the short - medium term ie + 5 years because the RMB isn't fully convertable ie there are restrictions on its conversion to other currencies.

While I am not always right, my current view on the USD hasn't changed from earlier in the year. I remain slightly bearish for the short term but in the medium - long term I remain bullish.

[Arrowhead]

Initially this is all about the direction of interest rates. The US cut rates aggressively, and so its currency slumped. The UK cut a little, and so has largely held ground with the USD recently. The ECB has maintained rates, so teh EUR has strengthened.

But the US has recently signalled that it has cut as much as it can, given inflation. However the UK has said the same and so has the ECB. So it looks like everyone's interst rates will stay the same for a while, and so exchange rates should too.

BUT this is also about economics. With the USD at a record low, its export machine will go into overdrive. If the dollar slips 50% then people stop buying Airbus and they start buying Boeing. Billions of dollars worth, and more than the US can ever print. So their economy starts to warm up (relatively speaking), making space for rate increases - well thats the theory anyway. Also the US will not have a war-mongering president (and oil import bill) for much longer.

My guess is things stabilise here for a year or so, and then the USD gains ground as its economy is first out of "recession" and it raises rates first. Very interesting that it seems to have hit its limit at 2.05 to the GBP, and may havew stalled at 1.55-1.60 to the Euro.

Just dont put your savings into a bank that is likely to go bankrupt.

[rtforu]

The interesting thing here is cross rates. The direction of the USD dollar in relation to certain currencies can be driven by totally different factors it seems, a good example would be USD/EURO as opposed to USD/AUD. Interest rate splits are probably driving the former and commodities the latter.

I can probably see the USD gaining on the Euro over time and maybe the Pound but I'm not so sure it will make much gain on the Canadian and Aussi.

[Kitsune]

The big difference between the Fed and the UK/EU banks is their remit. The UK/EU bank rates are set, specifically in the UK and generally in the EU, to target INFLATION. The Feds remit is to ensure GROWTH. With this fundamental disparity the US interest rate, and hence the currency will generally be below the £ or Euro.

In my time the HK$ has varied between 8.8 and nearly 16 to the £.........

[404 Titan]

rtforu

You know a famous investor by the name of Warren Buffet was once quoted as saying, “For every bubble there is a pin waiting to prick it”. The resources boom is no different to any other bubble in history, it will burst. If the world economy goes into decline with rising interest rates globally, it will burst before you know it.

Kitsune

There is actually concern amongst some senior economists that central banks that target inflation rather than growth could be leading their economies to disaster, especially when the inflation is imported like it is in Australia and Europe. While the central banks are fighting inflation that they really have no control over, their economies fall into a deep recession. It has only been in the last 30 years that some central banks around the world have been tasked with targeting inflation within a certain band. It is only a matter of time before it will be proven to be the failing fad it has become.

[rtforu]

Yes 404, I'm sure the bubble will burst but not anytime soon. I'm not sure I agree that this bubble is like all the rest. For instance, I couldn't see this boom as being similar to the dot com bubble. Given the demand from China and india I can see this cycle lasting for some years. While that is the case I can't see commodity based currencies reducing in value.

I hope I'm wrong!

[404 Titan]

rtforu

Strictly from an economic point of view when someone says “but this time it is different”, the hairs go up on the back of my neck. There is absolutely no difference with this bubble compared to all the bubbles that preceded it in history. It is also worth pointing out that prior to the Dot.com bubble in 2000, people were also saying “but this time it is different”. Look around you. The clouds are forming to produce the perfect storm.

[kluge]

Anyone care to suggest to some scenarios other than keeping funds in HKD and opportunities/threats to each.

That would be food for thought.

[Arrowhead]

I certainly would not keep my savings in HKD. 3% no thanks.

1) RMB for the currency appreciation (no brainer)
2) your home currency becuase it is just that - and GBP, NZD, AUD all offer good rates - nationwide intl in the UK offer 6.6% and is fairly "safe"

Just dont leave it in HKD or USD since the currency appreciation is far from guaranteed meanwhile the rate is pitiful.