Energy Prices, Inflation And Currency

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Crude oil rose to its highest intraday record 70.85 U.S. dollars on August 30, days after Hurricane Katrina’s landfall along the Gulf Coast. Although prices have slowed the week, it is advisable to find out how high commodity prices and the specter of inflation of foreign exchange (FX) market, particularly the U.S. dollar.
Traditional supply and demand will undoubtedly contribute to the long-term trend of energy prices. The demand side of the equation is getting a lot of press this year to focus on fast-growing thirst for oil as well as China and India. However, the recent rise in oil may be mainly due to hurricane related speculation in the futures market and the limited and focused (on the coast of the Gulf) refinery capacity in the U.S.
Economic data in recent weeks began to consider the effects of hurricanes Katrina and Rita, which ravaged the coasts of the United States in August and September. These data confirm what the Fed is all the time that the economy is growing at a rapid pace and that inflation, recession, should apply.
September employment data showed the first loss of jobs since May 2003, but the decline of 35,000 jobs was much smaller than the decline expected. September CPI posted the largest monthly increase in 25 years. However, when the volatile components of food and energy are removed, inflation was relatively moderate 0.1%. It was a little less than the market had been expecting, and suggests that higher energy prices have not gone through the core code.
Similarly, the September PPI title exceeded expectations and was the largest monthly gain in 15 years. However, once you remove the food and energy, and seeing that wholesale prices rose a relatively modest 0.3%. This is the base number is expected to win, although one could infer that the increase in energy prices have begun to affect prices at the wholesale level, and is only a matter of time before they passed higher prices forconsumers. Weaker than expected retail sales and 13 years of a new low in consumer confidence, energy prices are very expensive for U.S. consumers in mind. The way it develops, especially in the retail sector will be the holiday season is now important to focus on Wall Street.
When “inflation” of the word, seemingly on everyone’s lips these days, we expect the Fed will continue its adjustment program. The Federal Reserve raised borrowing overnight target in September by 25 basis points to 3.75%, rising from about 11 June 2004. Another rate hike is scheduled for October, and at least one hit 25 basis points is virtually assured in November or December.
The increase in U.S. interest rates and an expansion of U.S. economy is the market for foreign engines to power the U.S. Treasury and equity. These currents translate the demand for U.S. dollars, which has been generally good supply billion in September and October. Although not claim that equity markets are vulnerable at this stage, the interest rate differential picture should continue to favor the dollar until the end of the year.
High energy prices and inflation fears are not unique to U.S. banks and finance ministers from the Group of 20 industrialized and developing countries have gathered in Beijing this month. Statement issued on October 16, said high oil prices “could add to inflationary pressures, slow growth and cause instability in the global economy.”This should benefit the dollar and the times of global economic uncertainty, the dollar is still considered a “safe haven” currency. Although you may see in other countries begin to tighten monetary policy, U.S. interest rates will remain significantly higher.
The final decision on USD-JPY 115.00 bodes well for the dollar’s gains against the yen additional 118/120 area. On the other hand, the minimum in July in the dollar-euro exchange rate of 1.1868 should be broken up with a credible start to the dollar’s gains against the euro. This would be to move the focus to 2004 1.1759/78 low at first, but the potential to fall below 1.1500.
In times of inflationary pressures, the U.S. dollar has a tendency to lose ground against the commodity currencies. The commodity currencies are the currencies of the countries receiving the largest share of export sales of commodities. The main examples of raw liquid currencies the Canadian dollar, Australian dollar and New Zealand dollar.
The dollar hit a new low in 17 years in late September, the Canadian dollar against the back of strong oil and metals prices. Although the dollar recovered from its lows, profits are remedial in nature, and we are looking for long-term decline in USD CAD will continue.Similarly, USD and NZD-ARG-USD is consolidating below important resistance shown by the extent of the benefits of short and medium term.
At some point, domestic inflation and rising U.S. dollar refocusing on the U.S. trade deficitand balance of payments. That the U.S. goods and services more expensive, as well as domestic and foreign consumers, look elsewhere. The point where the U.S. stock marketreally vulnerable. The risk of loss in the stock market takes a negative impact on flows in the United States, and therefore the dollar long-term downward is likely to begin again to use by itself.
The conventional wisdom in financial services in accordance with the placement of 50 to 10% of its portfolio in alternative investments, such as those offered by CFS capital, it is desirable to achieve the diversification necessary to protect against adverse movements in asset classes more traditional.


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