Is it just some Holla Dolla or a new phase of King Dollar and why?

by Shaun Richards

The last few days have brought an ongoing topic to the fore and Holla Dolla refers to another strong period for the US Dollar. This morning it has been illustrated in a couple of ways as for example the UK Pound £ has nudged below US $1.29 and the Australian Dollar is nearing (0.7008) passing 0.7.


If we stay in a land down under for a moment we see abc news reporting this.

At 7:10am, the dollar was buying 70.1 US cents.

It was a significant drop from its value on Good Friday (71.5 US cents).

The currency’s sell-off was sparked by yesterday’s weak consumer price index (CPI) — with the figures revealing that core inflation ( at 1.4pc) had drifted to its lowest level in at least 16 years.

This looks the beginnings of another success for my leading indicator which I highlighted on the second of this month.

If we look ahead and use the narrow money measures that have proved to be such a good indicator elsewhere we see that the narrow money measure M1 actually fell in the period December to February. If we switch to the seasonally adjusted series we see that growth faded and went such that the recent peak last August of Aussie $ 357.1 billion was replaced by Aussie $356.1 billion in February so we are seeing actual falls on both nominal and real terms.

It would appear that according to abc others are if belatedly, keen to join our theme.

These latest developments have led to analysts from Australia’s major banks upgrading their rate cut expectations.

“The downward surprise to core inflation in the first quarter leaves the RBA with little choice but to cut the cash rate by 25 basis points at its May meeting,” ANZ economists Hayden Dimes and David Plank wrote in a note.

They also both expected a second rate cut to happen in August.

Or if we return to Men At Work.

I come from a land down under
Where beer does flow and men chunder
Can’t you hear, can’t you hear the thunder?
You better run, you better take cover, yeah

As a technical note yet again we see a central bank responding to events rather than getting ahead of them. Whatever happened to aiming at something 18/24 months ahead? Or to put it another way forward guidance has been anything but.


If we stay with customers of the Type 26 frigate programme then there was this yesterday from the Bank of Canada.

Given all of these developments, Governing Council judges that an accommodative policy interest rate continues to be warranted.

Which replaced this in January.

Weighing all of these factors, Governing Council continues to judge that the policy interest rate will need to rise over time into a neutral range to achieve the inflation target.

Depending on how you look at this they have either capitulated or adjusted to reality, albeit just like Australia they find themselves chasing events rather than anticipating them as reflected below.

In Canada, growth during the first half of 2019 is now expected to be slower than was anticipated in January.

Along the way we saw yet another bad afternoon for supporters of output gap theory and the concept of neutral interest-rates. Both were adjusted to suit the new outlook meaning they are fitted to the decisions taken rather than being part of any scientific process.

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The combination of these factors led to the Financial Post reporting this.

The value of the Canadian dollar dropped by nearly a penny to roughly 74 U.S. cents, as traders repriced financial assets to match a prolonged period of low borrowing costs.

It remains there as I type this leaving it around 5% lower than a year ago which again reminds us of dollar strength as it was only a couple of days ago we were noting that the Loonie had been boosted by the higher price of crude oil.


I am not sure who could possibly have thought that the Bank of Japan had any intention of raising interest-rates. But if you did you were disappointed this morning.

The Bank intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, at least through around spring 2020, taking
into account uncertainties regarding economic activity and prices including developments in overseas economies and the effects of the scheduled consumption tax hike.

The Yen is difficult to read this year after what happened on January 3rd with its flash rally.

We cannot rule out that this was deliberate and please note the Yen low versus the US Dollar was 104.9 as you read the tweet below.

Japanese exporters had bought a lot of usd/jpy puts at year end with 105 KOs so now they are really screwed … ( @fxmacro )

So it is a case of watch this space.


This has been in a downtrend against the US Dollar for a while now. The 1.115 of this morning has replaced the 1.21 of a year ago. The last week or so has seen something of an acceleration of this trend which has been driven by various factors. The economic slow down in the Euro area has been mostly in an exporting sector with manufacturing and particularly car production under pressure. This has led to more expectations of further easing from the European Central Bank. As interest-rates are already negative (-0.4%) this may be in other areas and this is why we have seen the ten-year yield in Germany go negative again (-0.01% today). Although interest-rate futures have risen a bit too ( this suggests lower interest-rates) although they always suffer from vertigo when they go above 100 as they were never supposed too!

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Maybe the shenanigans around Deutsche Bank have not helped either as the merger with Commerzbank appears to be off. Which as it share price is a mere 7.67 Euros does not leave Deutsche Bank with a lot of options.


There has been an elephant in today’s room which is that since the middle of December we have noted a change in US interest-rate policy as we wonder if Rod Stewart was on the money.

The first cut is the deepest
Baby I know the first cut is the deepest

What I think has been happening is that the change in US policy has reminded traders of two things. You can get 2.5% in the US right now via the official rate and the ten-year Treasury Note which is better than elsewhere. These days Canada (1.75%) and Australia (1.5%) are relatively high interest-rate countries however odd typing that feels. Also the US depends on external trade relatively less than other countries as this from the morning hints at.

KOREAGDP -0.3% in 1Q v +0.3% est. Shrank most in a decade. ( @fiatcurrency)

God knows who did the forecasts there as they must have been wearing blinkers.

Next we can return to our topic of Tuesday as the higher crude oil price ( now US $75 for Brent) impacts other countries who have to exchange their currency for dollars to buy it.

So let me sum up the trend with a quiz I posted yesterday on Twitter.


Me on The Investing Channel


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