For US major trade partners, a mixed bag on their costs for the dollar …

The top twelve destinations for U.S. exports are Canada, Mexico, China, Japan, Great Britain, France, Germany, Belgium, South Korea, Norway, Brazil, and Taiwan. There has been a mixed bag in terms of increases or decreases in each country’s cost of the US dollar since the beginning of 2021. Using currency data from OANDA, we identified the rate changes between 1 January 2021 and 18 March 2021.

Currency pair1 January 202118 March 2021Percentage change
USD/CAD1.27411.2450-2.3
USD/MXN19.883320.59713.6
USD/CNY6.52776.5006-0.4
USD/JPY103.1600109.07005.7
USD/GBP0.73250.7189-1.9
USD/EUR(1)0.81530.83882.9
USD/KRW1,086.10001,128.13003.9
USD/NOK8.54548.4699-0.9
USD/BRL5.19165.62088.2
USD/TWD28.077228.27240.7
Source: OANDA

(1) France, Germany, and Belgium use the euro as their currency. We refer to them collectively as the Eurozone.

Since January, countries seeing their currencies significantly strengthen against the dollar are Canada and Great Britain. On the other hand, Mexico, Japan, the Eurozone, South Korea, and Brazil have seen their currencies significantly weaken, making their cost to import U.S. product more expensive.

The primary mover of currency rates is supply and demand. The increased price of the dollar could be a result of this basic economic principal. Changes in bond yields may also have an impact on currency pricing as well as changes in policy rates imposed on banks due to their central banks’ policy initiatives.

During the same period in 2020, with the exception of Japan, all other top US trading partners saw their costs for US exports increase as shown in the following table:

Currency pair1 January 202018 March 2020Percentage change
USD/CAD1.30161.41008.3
USD/MXN18.906422.826620.7
USD/CNY6.96687.00480.4
USD/JPY108.6300106.9900-1.5
USD/GBP0.75830.82318.5
USD/EUR0.89150.90351.3
USD/KRW1,154.56001,240.10007.4
USD/NOK8.790610.357317.8
USD/BRL4.01635.006924.7
USD/TWD29.953130.21870.9
Source: OANDA

The shut downs around the globe due to the pandemic we believe may be the significant factor behind the changes in direction of these currency pairs.

18 March 2021 11:58 am EST

A very quick thought: Thought as base for currency value?

I believe that contained in all currency, whether digital or analog, is some notion of value. What is the next value play that drives up the value of a currency other than trust? Can intellectual property or thought be a currency driver? Crypto is mined when a problem is resolved. Can problem solvers be the next currency issuers?

I think in the next twenty years, the US dollar will be the default currency within the United States. As Amazon and other platforms replace the US public delivery structure, they will issue more of their own “currency” and compete with the US. They will become exclusive to their own members and keep low income people off of their platforms, especially as the affluent move out of large cities and into the suburbs, exburbs, and rural areas where they can find more space and be around fewer people.

Interbank market scan: Central Banks and Foreign Exchange … and the year of the Ox.

Follow the links …

In a sign of continued maturity as a macro asset, bitcoin now looks to be leading the price action in the foreign exchange markets (FX). Bitcoin Starting to Lead FX Markets, Analysis of Tesla Reaction Shows: Report – CoinDesk

Group of Seven finance ministers are expected on Friday to back a new allocation of the International Monetary Fund’s own currency, or Special Drawing Rights, to help low-income countries hit by the coronavirus pandemic. GRAPHIC-Which countries would benefit most from an IMF SDR increase (msn.com)

World shares dipped on Friday as investors awaited progress towards more U.S. fiscal stimulus, while the dollar was set for a weekly loss and cryptocurrency Bitcoin hit a record high. World shares dip and Bitcoin hits record high – Metro US

Currency pairsExchange Rate as of 4:15 pm 8 February 2021(1) As of 12:31 pm EST Exchange Rate as of 12 February 2021(2)
AUD/USD0.7656 0.7725
USD/CAD1.2781 1.2694
USD/CNY6.4664 6.4542
EUR/USD1.2035 1.2124
USD/INR72.8500 72.6000
GBP/USD1.3714 1.3855
USD/JPY105.4400 104.9500
USD/MXN20.1300 19.9320
USD/DKK6.1785 6.1496
USD/NOK8.5428 8.4958
Sources: Federal Reserve (1) ; Reuters (2)

Government strategy: Is Biden staffing up for currency war with China and the Eurozone?

Last Friday, the Federal Reserve Bank of New York announced that the head of its markets group, Daleep Singh, has resigned to join the Biden administration as both Deputy National Security Advisor and Deputy National Economic Advisor. This is the second prominent Biden administration choice being asked to sit in what apparently are two different policy realms: foreign and domestic. Dr. Susan Rice, who is an expert in foreign affairs, is currently Mr Biden’s assistant for domestic policy and chair of the domestic policy council in Mr Biden’s absence.

Mr Biden reportedly thinks of domestic and foreign policy as one and the same. One of the holdovers from the Trump administration is the focus on China. Mr Biden has expressed that China should expect “extreme competition” from the United States while emphasizing that there is room for accord without conflict. Mr Biden has signaled that avoiding conflict during intense competition may require falling back on existing international law.

Mr Biden’s China agenda will require buy-in from the American public. American manufacturers and farmers in particular were directly impacted by the Trump administration’s tariff war with China. Mr Biden will need a domestic policy agenda that gets Americans on board with his China initiative while crafting a policy agenda towards China that reflects benefits in the American domestic economy.

The currency portion of the foreign agenda toward China for now does not include a currency war. At the outset of her tenure Treasury Secretary Janet Yellen signaled that the US would abandon any remnant of the “strong dollar” policy favored by the Trump administration preferring instead to allow the market to determine currency rates. The dollar’s overall steady weakening in currency markets makes its domestically produced goods more attractive to foreign importers, a weakening not due to any market intervention on the part of the United States. In theory this makes domestically produced items more attractive price wise to US taxpayers and makes imports from foreign nations i.e. China, more expensive.

Secretary Yellen will be receiving direct messaging from the Executive Office of the President on China and likely on currency issues. Ms Yellen, as Treasury secretary, is a member of the National Security Council for which Mr Singh will now have a high staff role. Mr Singh has extensive experience in the area of foreign exchange having focused on U.S. interest rates and the currency markets for the better part of eight years when he was with Goldman Sachs. Secretary Yellen is also a member of the Domestic Policy Council where Dr. Rice will serve as chairman when Mr Biden is not present.

The government strategy takeaway here is to pay additional attention to the messaging from the national security council and the domestic policy council and ascertaining whether messages out of the Executive Office of the President and the Treasury Department are in sync when it comes to the US’ stance on currency markets.

Government strategy: Jobs report firms Biden resolve to focus on household aid …

Currency pairsExchange Rate as of 4 February 2021The eventPost Event-Exchange Rate as of 5 February 2021 
AUD/USD0.7616US adds 49,000 jobs. Biden believes years before US sees full employment0.7616 
USD/CAD1.2782US adds 49,000 jobs. Biden believes years before US sees full employment1.2809 
USD/CNY6.4585US adds 49,000 jobs. Biden believes years before US sees full employment6.4639 
EUR/USD1.2030US adds 49,000 jobs. Biden believes years before US sees full employment1.9920 
USD/INR72.8942US adds 49,000 jobs. Biden believes years before US sees full employment72.8955 
GBP/USD1.3651US adds 49,000 jobs. Biden believes years before US sees full employment1.3637 
USD/JPY105.0200US adds 49,000 jobs. Biden believes years before US sees full employment105.3000 
USD/MXN20.1501US adds 49,000 jobs. Biden believes years before US sees full employment20.3041 
USD/DKK6.1815US adds 49,000 jobs. Biden believes years before US sees full employment6.2005 
USD/NOK8.5960US adds 49,000 jobs. Biden believes years before US sees full employment8.6190 
Source: OANDA

In the news

From the White House’s Council of Economic Advisors. This morning’s jobs report reveals that the pace of job gains has slowed sharply in recent months as the pandemic continues to weigh on job creation, especially in face-to-face services. Strong relief is urgently and quickly needed to control the virus, get vaccine shots in arms, and finally launch a robust, equitable and racially inclusive recovery. The Employment Situation in January | The White House

House Democrats on Friday voted to adopt a final budget measure, setting off an approximately two-week sprint to draft a coronavirus relief bill that would mark President Joe Biden’s first legislative win. House clears way for massive coronavirus stimulus plan (msn.com)

The Commerce Department’s National Telecommunications and Information Administration (NTIA) is committed to increasing broadband Internet access across America, particularly in unserved and underserved communities. The recently enacted Consolidated Appropriations Act of 2021 provides new sources of tribal broadband funding to assist in mitigating the effects of the COVID-19 pandemic which is exacerbating the digital divide across Indian Country.  NTIA Announces Tribal Consultations on New Program to Increase Broadband Access Across Indian Country | U.S. Department of Commerce

The Takeaway

The White House will not be placing emphasis on infrastructure deployment via its “American Rescue Plan.” The White House appears focused on short term aid to households via an additional $1400 in aid payments and on the gender issue, particularly the reported disproportionate impact pandemic-induced unemployment has had on women in the workforce. Not to say that infrastructure is off the agenda. Mr Biden through the U.S. Department of Commerce, has announced the administration’s intent to incentivize the deployment of broadband infrastructure on Native American lands via grants from the U.S. Department of Commerce.

Mr Biden’s approach to infrastructure, at this juncture, seems more like patchwork versus coordinated, targeted, and streamlined. Covid relief itself, through the American Rescue Plan, looks like it will be delayed with final work on legislation not expected until March 14th.

Currency markets should not view the funding as a currency mover especially with no definitive information on the impact the funding will have on interest rates or yields, factors that make the US more attractive for investment thus greater demand for US currency.

Interbank market scan, as of 11:17 am AST: Central banks, cryptocurrency, foreign exchange

Beijing is keen to end the dollar hegemony that affords Washington vast power and ultra-low borrowing costs. It also wants to pull in more foreign capital to accelerate its economic development. Opinion | How Trump made China’s currency great again – The Washington Post

The USD/JPY bottoms are close at 102.00’s and nearly 200 pips. USD/CAD 200 pip bottoms at 1.2500’s. USD 200 pip bottoms means all currencies listed as USD/Other pair are all close to major bottoms at 200 ish pips. Currency market: USD/PLN and USD/BRL (fxstreet.com)

Brussels faces a steep climb in its effort to boost the international role of the euro as part of its quest to strengthen the EU’s self-reliance, investors and analysts said after the bloc set out new ambitions for the single currency. EU faces barriers to boosting single currency’s global status | Financial Times (ft.com)

European multinational corporations suffered the brunt of the $9.82 billion reported lost due to currency volatility in the third quarter of 2020. Kyriba’s Currency Impact Report Reveals $9.82 Billion in Total Quarterly FX Losses for European and North American Multinational Corporations (apnews.com)

The negative impact of currency fluctuations on North American company results fell sharply in 2020’s third quarter, reversing an upward trend, according to data from treasury and financial management firm Kyriba released on Tuesday. Currency Hit to North American Companies Dropped in Third Quarter: Kyriba | Investing News | US News

Banque de France has successfully conducted a central bank digital currency (CBDC) experiment using a blockchain platform for interbank settlement. French Central Bank Trials Digital Currency for Interbank Settlement | Nasdaq

Government strategy: Why bitcoin will not be the world’s reserve currency

I read an interesting article appearing originally on the website Aikon on the prospect of bitcoin becoming the globe’s reserve currency. The author makes the following points in support of his argument.

Bitcoin is transparent. All transactions involving a bitcoin are reflected on a public ledger. Bitcoin transactions are decentralized. There is no central authority controlling bitcoin issuance, valuation, or settlement. Bitcoin is garnering more participants including individuals, institutional investors, and governments willing to invest in the technology and its tokens.

The world, according to the article, is at the threshold of a financial revolution with changes in the financial system being brought about by the strains on the economic system caused by the Covid-19 pandemic. The article argues that although the United States has engaged less with the global economy over the last twenty years, China, forecasted to provide the world with the next reserve currency, is avoiding completing the tasks necessary for taking the number one spot. Compounding what Aikon has determined as an unwillingness to do what it takes to get the spot is a collapsing U.S.-Chinese relationship.

Given the above negatives against a continued use of the U.S. dollar as the globe’s reserve currency, and the unlikeliness of the Chinese yuan taking this position, Aikon asserts that bitcoin is positioned to be the global reserve currency because, again, of decentralization and the cryptocurrencies underlying financial system. But if we applied the definition of a reserve currency to bitcoin, we should find that bitcoin is not ready to be a reserve currency.

First, bitcoin is not a currency. A currency is a unit of account, a store of value, and a medium for the exchange of goods and services. That a dollar price has been placed on a bitcoin may satisfy the unit of account assertion. The existence of digital wallets that can store bitcoin may further compound the assertion of bitcoin as a unit of account since a wallet provides a place to go and determine the amount of the digital asset that you have.

A store of value, on the other hand, I have my doubts. A currency should reflect an underlying economy and where that economy is functional ie executes rules for trade and commerce in various markets, the currency provides a store of value. Bitcoin has no attachment to an underlying, viable economy as evidenced by the third element of the definition of currency: bitcoin is not used as a medium of exchange in a volume so sufficient that, like the US dollar of the euro, no other currency is necessary for making a transaction in a particular political economy. Bitcoin is not a currency.

The proof that bitcoin is not a currency should be sufficient to negate bitcoin as a reserve currency as well. The website Investopedia provides the following definition of a reserve currency:

“A reserve currency is a large quantity of currency maintained by central banks and other major financial institutions to prepare for investments, transactions, and international debt obligations, or to influence their domestic exchange rate.”

Bitcoin’s current market capitalization is approximately $668 billion with approximately 18.6 million digital tokens in circulation. This pales in significance to U.S. dollar reserves of approximately $6.7 trillion. Bitcoin is allegedly capped at 21 million tokens. If all 21 million tokens were available today, to equal total US global reserves, bitcoin will have to be valued at approximately $319,000 a token. While some analysts have called a rise in bitcoin valuation up $400,000 a token, I have seen no estimates as to the likelihood anytime in the near future.

Based on current valuation and uncertainty given the token’s volatility of bitcoin market cap equaling global US reserves, I don’t see the US government implementing any immediate strategy to counter bitcoin as a new reserve currency.

It has always been about speculation …

To understand the trade of currency is to understand the need for speculation. Speculation has always been about managing the future, managing fear. Speculation is about ramping up the future value of currency in order to protect yourself, your knowledge, your property. You make bets that your value will grow. What we produce is merely manifestation of how well we protect ourselves going forward, and the more secure we are in the yield from our labor and the infrastructure on which we exchange value, the greater our currency.

It’s not a gamble when we speculate. It’s not a fool’s errand. It is a natural outgrowth of the prism of fear through which man views his world. Until we get rid of the fear, we will always speculate….

Foreign exchange rates in light of Mnuchin, Powell testimony before the US Senate …

As of  11:23 am AST, 1 December 2020:

How to read the chart:

CAD/USD: If you come to the United States with one Canadian dollar (CAD)and wish to sell it for a US dollar (USD), the market price is .77051 USD.

USD/CAD: If you take a US dollar (USD) to Canada and wish to sell it for a Canadian dollar (CAD), the market price is 1.29766 CAD

CAD/USD=0.77051   USD/CAD=1.29766

CNH/USD= 0.15204   USD/CNH=6.57584

EUR/USD= 1.19642   USD/EUR=0.83573

DKK/USD =0.16075   USD/DKK=6.21944

NGN/USD= 0.00261    USD/NGN=378.336

JPY/USD=0.00960    USD/JPY=104.12

INR/USD=0.01351       USD/INR=73.8918

JMD/USD=0.00675     USD/JMD=145.028

GYD/USD=0.00469       USD/GYD= 205.043

GHS/USD=0.17028    USD/GHS= 5.82869

XCD/USD=0.37037        USD/XCD= 2.70

KES/USD = 0.00900       USD/KES= 109.047

BTC/USD= 16,987.20    USD/BTC= 0.00006

Source: OANDA

Major political/legal events impacting currencies

Today, Steven Mnuchin, Secretary of the U.S. Department of the Treasury, and Jerome Powell, Chairman of the Board of Governors of the Federal Reserve System, are testifying before the U.S. Senate Committee on Banking, Housing and Urban Affairs.  Questions are expected to seek clarification as to Secretary Mnuchin’s request that remaining funds from the CARES Act be sent back to the Congress’ general fund.  Chairman Powell will reiterate the need for fiscal policy in the face of increasing COVID-19 infections and an economy that is still on the rebound.  

Source: U.S. Senate Committee on Banking, Housing and Urban Affairs

10:37 am 13 November 2020, Foreign exchange rates between U.S. and select countries in East Africa, West Africa, the Caribbean, and Asia

As of 10:37 am EST, 13 November 2020:

How to read the chart:

CAD/USD: If you come to the United States with one Canadian dollar (CAD)and wish to sell it for a US dollar (USD), the market price is .76327 USD.

USD/CAD: If you take a US dollar (USD) to Canada and wish to sell it for a Canadian dollar (CAD), the market price is 1.30996 CAD

CAD/USD=0.76327   USD/CAD=1.30996

CNH/USD= 0.15112   USD/CNH=6.61616

EUR/USD= 1.17938   USD/EUR=0.84780

DKK/USD =0.15838     USD/DKK=6.31214

NGN/USD= 0.00262    USD/NGN=380.053

JPY/USD=0.00950      USD/JPY=105.23

INR/USD=0.01340       USD/INR=74.4783

JMD/USD=0.00671     USD/JMD=145.880

GYD/USD=0.00469       USD/GYD= 204.829

GHS/USD=0.17098     USD/GHS= 5.81812

XCD/USD=0.37037        USD/XCD= 2.70

KES/USD = 0.00909       USD/KES= 108.088

Source: OANDA

Major political/legal event in the United States

Yesterday in attempt to address attacks on American national security, President Donald J. Trump issued an executive order prohibiting transactions in publicly traded securities of Chinese military companies.  President Trump argues that capital raised via transactions in the securities of these companies is eventually channeled into financing improvements in Chinese military intelligence gathering.

Source:  Executive Office of the President