>Asia getting jittery over US Dollar?

>As a follow up to this post, US in Deep Doodoo, here is my observation of the US Dollar.

I notice that Asian investors are heavily skewed towards stocks rather than other types of financial instruments. They are less savvy in futures, options, currencies, commodities than their European and American counterparts. This is evident in the volume traded.

Whenever Asia is buzzing from approximately 2200h GMT to 0700h GMT the next day, the Asian stock markets see a high volume traded. That’s natural, right? The Forex market, unlike the stock market however, is a 24-hour market. Depending on whether it is summer of winter, Europe will kick in at 0600h or 0700h GMT, while New York will kick in about about 1300h or 1400h GMT.

One indication that Asians stay away from currencies is the thin volume traded during Asian market time. The volume picks up when Europe kicks in, and it goes crazy when New York wakes up and start work.

So it can be quite dead during Asian hours as far as Forex markets is concerned. Even if there are any movements or swing during Asian hours, it is the Euro/Dollar or US/JPY (US-Yen) that would see any activity.

However, I noticed that this is the second day there is “significant” movement in the US/CAD (US Dollar – Canadian Dollar) during Asian hours. Usually, this pair is dead during Asian hours.

US markets closed last night at around 1.0320 for US/CAD. Some hours after Asia took over, it dropped to 1.0276 at about 0340h GMT (and still dropping). So why is Asia, known for its lack of interest in the Forex markets, so jittery? Signs of Asian investors dumping the US Dollar?

PS – The same thing happened yesterday. It was the US investors that brought the US/CAD up to above 1.300, before it dropped again when Asia took over this morning.

>US in Deep Doodoo

>For years, many economic and financial analysts have feared that the US Dollar will decline. I have been following talks about the US Dollar’s decline as early as in the early 2000s. One of the biggest talk was OPEC’s decision to dump the dollar to trade oil.

Today, the talk of of the US Dollar’s decline is still haunting the news. In fact, it is worse. The talk is now no longer about just a decline. It is about the dollar’s demise.

Here is news that China, holder of billions of USD’s worth of assets, is slowly but surely moving away from the dollar. This article was published in 2007.

Is China quietly dumping US Treasuries?

A sharp drop in foreign holdings of US Treasury bonds over the last five weeks has raised concerns that China is quietly withdrawing its funds from the United States, leaving the dollar increasingly vulnerable.

Data released by the New York Federal Reserve shows that foreign central banks have cut their stash of US Treasuries by $48bn since late July, with falls of $32bn in the last two weeks alone.

There is also talk that OPEC has decided to dump the dollar. According to news that you can surf, OPEC denies it – so far. Another article about OPEC’s intention to dump the dollar, published in 2007.

Will OPEC Dump the Dollar?

The dominant theme that emerged from the cacophonous OPEC summit that concluded in Riyadh on Nov. 18 was countries that have amassed huge piles of dollars from selling oil don’t like seeing the value of their currency reserves eroded. While the host Saudis urged restraint lest the dollar fall even more, Iranian President Mahmoud Ahmedinejad scorned the greenback as a “worthless piece of paper.”

Iran is pushing OPEC to shift away from pricing oil in dollars and instead to a basket of currencies that could include the euro. The Islamic Republic is already requiring its customers to pay in euros or yen, partly to avoid a tightening financial squeeze orchestrated by the U.S. But this is largely a symbolic gesture because the price of its oil is still based on dollar benchmarks.

Those reports were published 2 years ago. Fast forward today, and this is what we have. Here is a candid but true representation of what is happening to the US Dollar.

A basket of currencies to trade oil, with the US Dollar not included? Hey, notice that the Canadian Dollar is in it? Say, those Americans who have always poked fun at their northern neighbours for being “economically backward” (no different from Singaporeans who poke fun at our northerners) aren’t laughing any more, are they?

The US actually has the ability to pull itself out of this mess. All it has to do is to yank its troops out of the Iraq and Afghanistan – the biggest drainer of financial resources.

But knowing the elephants and the donkeys in the US government, they will either just stay put like donkeys or lumber along like elephants.

For those who are able to read charts, here are 2 screenshots of the US Dollar against the Canadian Dollar below.

Red Line – 20 period moving average
Blue Line – 50 period moving average
Yellow Line – 200 period moving average

Daily Chart

So where is the bottom? It broke below all three moving averages and no support in sight!

Weekly Chart

There’s the bottom! US Dollar below parity against Canadian Dollar!

The US Dollar was at its historical low against the Canadian Dollar in Oct 2007. For the first time in history, the CAD was stronger than the USD. What’s stopping the USD to drop to that level again?

If you hold US Dollars, don’t say you have not been forewarned.