Nomura:credit rating downgrade of US would lead to fall at least 3-5% of USD

Discussion in 'Wall St. News' started by ASusilovic, Jul 27, 2011.

  1. In a note out Wednesday Nomura’s FX team reckon we’re already starting to see small signs of the US dollar ending its inverse correlation with signs of risk-on sentiment. Firstly, with the S&P:

    Correlations take time to flip, as they are backward looking by construction. But over the last week, there has generally been a shift with the dollar moving in the same direction as the S&P500 in four out of the last five trading days (a more “normal” ratio has 1:3).

    Secondly, with US Treasuries:

    The recent price action suggests that the relationship between US bond yields and the dollar is changing. The dollar has recently become negatively correlated with the slope of the US yield curve—meaning the risk premium now being priced into the long end of the US curve is also affecting the dollar negatively.

    This double whammy could have important consequences, adds Nomura:

    From a policy perspective, it is well known that the combination of USD weakness and UST weakness is the one that the US Treasury fears and one that could trigger FX intervention to stabilize markets.

    After six months the CAD and JPY slipped 1.6 and 2.7 per cent respectively, vis-a-vis the US dollar, which leads Wells to conclude:

    Overall, we find the Canadian and Japanese experiences useful precedents, with currency declines of around 3% seenin the months following the initial downgrade. Past experience hints at a dollar decline of perhaps 3% to 5% in the months following a credit rating downgrade.

    http://ftalphaville.ft.com/blog/2011/07/27/636201/alternatives-to-the-usaaa-dollar-edition/
     
  2. bone

    bone ET Sponsor

    Good, that will slow down further Fed QE since deflating the USD has been the strategy all along.

    Might get a manufacturing bump out of it.
     
  3. Lol, no. Fed wants a weaker dollar. This is music to the Bernank's big ears.plus imm long Yen & Cad. This is sweet!
     
  4. bone

    bone ET Sponsor

    This actually plays right into the Fed's hands in terms of making US manufacturing more competitive.

    [​IMG]
     
  5. Illum

    Illum

    Yen went up after after downgrade.
     
  6. Us Manufacturing is less than 30% of our GDP.

    70% is consumer spending. A weak dollar destroys buying power of the middle class. A weaker dollar combined with massive inflation will bankrupt the middle class in a very short time frame.

    Weaker dollar creates a flood of money out of the US into Emerging Markets.

    Weaker dollar allows the export of our massive inflation into those nations who are in a bull market like, Brazil, china, Indonesia, etc.

    Stronger Foreign currency allows for the Foreign investments into key US infrastructure and Natural Resources.

    BOTTOM LINE...THE USA IS FOR SALE AT PENNIES ON THE DOLLAR.
    THE MIDDLE CLASS IS FINISHED, THEY JUST DO NOT KNOW IT YET AS THEY ARE IN LA LA LAND.
    UNEMPLOYMENT IS NEAR 20% AND CLIMBING WITH STRUCTURAL UNEMPLOYMENT, JOBS NEVER COMING BACK.

    THE USA WILL NOT CHANGE COURSE.

    It is now left up to Free States, pro business states and local economies. There is plenty of money being made as 80% are still employed, just comes down to the area you live in.
     
  7. The Nomura's are confused. The dollar would rise, and that is the logical outcome. I cannot believe that such a company as Nomura cannot think straight.