We already know that the Euro is pretty much held up by Leprechauns and rainbows, but what’s holding the Dollar up?
Thanks to currency wars, which the G20 swore off for just long enough to hold their news conference in February, the aggressive printing of Euros and Yen are driving investors toward Dollar investments, even though the Fed just keeps on printing, too.
Furthermore, the crisis of confidence in the Eurozone over Cyprus and the depositor haircuts drove skittish money toward German bonds, Japanese Yen (where they were rebuffed by yet more printing), and US Dollars. In fact, the Dollar has been strengthening against the Euro since those empty G20 promises expired the next day, and against the Yen due to their heavy printing.
All sunshine and lollipops, right? Not so fast, folks – While investors in places that are crumbling faster than the USA are choosing the Dollar, Asian countries in particular are concluding more and more that they can do business without Dollars at all.
The latest, ahem, Chink in our armor, is an agreement between Australia and China to promote direct convertibility of Yuan (Renminbi) and Australian Dollars to reduce costs for mutual trade, which is large and growing. ZeroHedge has the story on the growing number of bilateral, non-Dollar trade arrangements.
Like I said previously, the Fed can only continue printing – in effect, feeding out the string – as long as the world continues to demand Dollars. As soon as the net difference between supply and demand shifts to the point where there is excess supply, the value of the dollar could plunge very quickly.