The future of the USD?

[MARKETWINNER]

US Dollar is very strong now.

During last couple of days we saw heavy selling in all type of currencies including emerging and frontier market currencies. USD appreciated against most currencies such NZD, AUD, Indian and Sri-Lankan rupees, Malaysian ringgit, Philippine peso etc. Why? Currency market is readjusting now. There are silver linings in these falling currencies. Because some sectors in the economy will benefit lot.

Both the Brazilian real and South African rand touched four-year lows against the US dollar on Tuesday. The Indian rupee fell to a record low. Even countries like the Philippines and Mexico have been hit by heavy selling. Some central banks have begun to intervene to control the currency slides. If I am correct The FTSE Emerging Markets index fell 1.7 per cent on Tuesday.

We have to accept USD dollar was underperforming against some currencies both hard and soft currencies such as NZD, AUD, and Indian rupee due to over speculations. As I said before it has become bull currency now. In other words the dollar (USD) has entered a multi-year bull cycle. USD is number one reserve currency in the world.

Every asset has cycles. We have to identify this cycles before others. Both NZD and AUD have appreciated more than 50% against some south Asian currencies during last five years. Now cycle has reversed and both NZD and AUD should depreciate not only against USD but also some emerging and frontier markets currencies in Asia. Few Asian currencies including India rupee will go up against NZD, AUD and CAD in the coming quarters. They will go down against USD.

On the other hand USD will appreciate not only against emerging currencies but also against currencies such as AUD, CAD and NZD.

http://online.wsj.com/article/SB10001424127887323893504578556493706245344.html

Indian Rupee Hits New Record Low

http://www.bloomberg.com/news/2013-...-worst-week-since-2010-on-fed-bonds-fall.html

Philippine Peso Set for Worst Week Since 2010 on Fed; Bonds Fall

http://www.reuters.com/article/2013/06/20/kenya-markets-idUSL5N0EW2BL20130620

UPDATE 1-Kenyan shilling ends weaker, shares inch up

http://www.thejakartaglobe.com/busi...iggest-weekly-loss-in-3-years-on-fed-concern/

Ringgit Heads for Biggest Weekly Loss in 3 Years on Fed Concern

For me above events look like a currency war or currency crisis. Actually we are having a kind of gold and currency crisis now. These new developments will bring fortune for some companies in developed, emerging and frontier markets due to unexpected increase in profits when they convert currencies. So they will have strong balance sheets in the coming financial year when compare with current financial year.

My ideas are not a recommendation to either buy or sell any security,commodity or currency. Please do your own research prior to making any investment decisions. Please note that I do not endorse or take responsibility for material in the above hyper-linked sites.

 

[MARKETWINNER]

I did 10 year analysis on few selected currencies including few frontier and emerging market currencies and how they traded against USD, NZD and AUD.

In 2004 one dollar was equal to 45 Indian rupees and by 2008 it was around 39 rupees for one dollar while having fluctuations time to time. Then one dollar went up to Indian rupee 49 by 2009. Indian rupee has appreciated against USD from 2004 to 2008 and from 2008 to 2009 it has depreciated fast against USD. From 2009 to latter part of 2011 Indian rupee has appreciated from around Rs.49 to Rs.44 against USD. From 2012 to Indian rupee has depreciated against USD gradually while having volatility to around Rs.53 level. During last couple of day Indian rupee depreciated against USD faster than we thought. Now one USD dollar is equal to 59 Indian rupees.

USD has appreciated around Rs.90 to Rs.116/- against Sri-Lankan rupee form 2004 to 2009 while having minor volatility. From 2009 to 2012. Sri-Lankan rupee has appreciated from Rs.116 to Rs109 against USD. In 2012 there were devaluation of rupee and as a result of that USD went up against Sri-Lankan rupee. Otherwise rupee would have appreciated more. Now USD is appreciating against Sri-Lankan rupee and trading around Rs.129 against USD.

From 2004 to 2008 Malaysian ringgit has appreciated from MYR 3.8 to around 3.20 against USD.From 2008 to 2009 it depreciated against USD to MYR around 3.50 levels. From 2009 to later part of 2011 again MYR appreciated against USD to MYR around 3 levels. From 2012 to 2103 MYR was trading around 3.06 levels while having volatility and recently it has depreciated to MYR 3.09 to level against USD.

In 2004 NZD dollar was trading around Sri-Lankan rupees 55 and by 2008 NZD appreciated rapidly against Sri-Lankan rupee to Rs.85 levels. Then from 2008 to middle of 2009 Rupee appreciated against NZD to around Rs.60 level. From 2009 to 2013 NZD has appreciated to around Rs.109. Recently rupee started to appreciate against NZD and trading around Rs.99 against NZD.

In 2004 one NZD was around 26 Indian rupees and by 2008 it was depreciated against NZD to around Rs.33 level while having range bound around Rs.27 to Rs.31. From 2008 to 2009 Indian rupee appreciated to around Rs.26 against NZD and thereafter it NZD appreciated rapidly to INR around Rs.45 levels.

In 2009 AUD was trading around Indian rupee 32 levels and it depreciated against AUD rapidly during last couple of years and was trading around INR 55 against AUD by 2013. In 2009 AUD was trading around Sri-Lankan rupee 80 and it has appreciated against rupee rapidly and by 2013 it was trading around Rs.135 and now it is trading around Rs.118/

Based on the above analysis NZD and AUD has appreciated not only against USD but also against some emerging and frontier currencies by more than 80% during last couple of years. On the other hand Malaysian ringgit has traded as a sister currency to both AUD and NZD. Even in emerging world and frontier world they invested more in NZD and AUD during last couple of years neglecting pound, euro and USD. Now currency cycle has changed and emerging world currencies are falling against USD.

Finally USD has become number one bull currency. AUD, NZD and few emerging currencies have become bear currencies now. I believe Euro and Pound will not go down as other currencies as they have already factored to negative economic indicators. Both NZD and AUD will accelerate their bear journey now.

My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions.