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The USD Super Cycle

Posted by Graham Parlane on 13 December 2012

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The USD Index has fallen from 121 in 2001 to currently sit at 80 (has been as low as 71 at the height of the GFC 2008).

Essentially the FED’s policies since the GFC have been aimed at devaluing their way to prosperity. Remember when they had a ‘strong dollar policy’ that was quoted by officials at every chance ? That’s right, we haven’t heard that one for a very long time!

I have long maintained that this super cycle won’t end until the rest of the world cries out “Hey, you can’t devalue your way to prosperity at the expense of the rest of us”.

That will likely require an accord of some sort like we’ve seen in the past, see ‘Louvre Accord’ 1987 – halting the decline of the USD http://en.wikipedia.org/wiki/Louvre_Accord and the ‘Plaza Accord’ also 1987 –  http://en.wikipedia.org/wiki/Plaza_Accord .

Already we have heard increasingly strained complaints from the likes of the outgoing RBNZ Gov. Bollard, the RBA and the BoE. This I’d suspect is only the beginning and the howls of anguish are only likely to get louder before this super cycle is finished. Unfortunately for our little export orientated economy that probably means coping with a much higher NZD/USD, and worryingly a higher NZD/AUD which recently has served as a bit of a circuit breaker for us.

Looking at the USD Index, the price action since the onset of the GFC simply looks like a consolidation and today’s FED announcement has every chance of propelling the USD down and out of the multi-year triangle consolidation.

Click here to view chart

NZD/USD at 0.9500 anyone ?

G.

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