Today, the markets witnessed one for the history books, a rare triple parity event for freely floated currencies, featuring the Aussie, Canadian and U.S. dollars.
It was bound to happen sooner or later. Both the Australian and Canadian currencies have been underpinned by a surge in commodity prices. And although the loonie has actually weakened against the euro and other major currencies lately, its climb against the U.S. dollar is sure to continue.
The Swiss franc, another safe-haven currency, also rose to a record level against the greenback, and the Singapore dollar moved up as well, after the government paved the way.
This is a trend that will continue, not only because of worries about the soaring U.S. budget deficit and its stumbling economy but because U.S. policy-setters want it that way.
It’s plain that the monetary brain trust has concluded the only way to restore some semblance of growth and put some badly needed inflation back into the economy is a substantially weaker currency.
Below zero real interest rates haven’t done the trick; but expectations that the Fed will flood the market with dollars through an aggressive bout of quantitative easing are definitely driving the safe-haven bond fans out of the greenback.
It’s no coincidence that the U.S. dollar has been falling ever since the Fed outlined its easier-money plans back in September. But if the decline continues to be as pronounced in the months ahead, look for other governments to start pushing for some sort of co-ordinated intervention to “stabilize” the currency.
In the meantime, won’t it be awfully hypocritical for American officials to label the Chinese as currency manipulators? They are, but they’re not alone.