Get set for Obamanomics hitting global financial and investment markets in 2009 as a new political agenda and approach comes into being in the US. I am not sure Obamanomics will be any different to the spend, borrow and hope Reganomics era in the US or even the free-market “Rogernomics†we experienced at the other end of the scale here in New Zealand in the 1980's. But hey, it sounds impressive. I seriously doubt that a change to a Democratic presidency in the US will change the outlook and direction of the US dollar, but it does appear that the American people are crying out for some form of leadership. What we do know is that some parts of the US economy still have serious problems (e.g. residential real estate), both other parts are doing pretty well these days (e.g. their export sector). Demand to buy any currency and the supply coming onto the FX market from sellers drives currency price changes, not necessarily changes in the political landscape. I do not expect any great impact on the USD value from a political change in the US in November, or a massive impact on the NZD value from a likely change in Government here. Picking changes in currency values is also about relative performance vis-à -vis other currencies and economies. It is these factors that we see strengthening the USD over coming months against the major currencies of EUR, GBP, JPY, CAD and AUD. The implications for the NZD/USD rate are that it re-commences its downtrend once the current period of consolidation around 0.7000 plays out. I see the following forces as being positive for the USD itself:- -US interest rates far more likely to increase, but the Europeans being forced to cut their interest rates as their economies sink into recession. -Portfolio investors globally have been underweight USD denominated assets for some eight years whilst the USD was depreciating. It is no longer weakening and those same investors will be re-weighting USD assets to higher percentages i.e. buying USD’s - The US current account deficit has reduced significantly as their imports slow and exports expand impressively -- always positive for a currency. Also, the Asian and Middle-Eastern nation’s foreign currency reserves may swing back to an appreciating USD than a weakening Euro. -Weaker economic performance in Japan, Europe and the UK must reduce global demand and thus commodity/energy prices. Slower Asian growth must also be a result. The USD currency value is inextricably linked to the oil price. Lower oil prices mean a stronger USD and vice-versa. I am still not sure which price leads the other in this respect. - Cross-border capital flows into the US as global corporations/investors see the US economy returning to growth earlier and faster than Europe and Japan. ------------------ *Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com.
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