By Dr. Hans Black
Interinvest Review & Outlook
What a difference several months can make. Since the referendum in France in late May and the subsequent, though less important, referendum in Holland, investors worldwide have been shunning the euro and running back to the dollar. Where in December investors were so solidly convinced they needed to own euros at 1.36, now nobody wants to hear about them at 1.19. This 17-cent, six-month slide is probably coming to an end and during the (usually calmer) summer will see a period of sideways trading. Rebounds could easily take us back to the 1.23-1.25 zone. Past September, however, we would not be surprised if the dollar reasserts its bullishness and heads higher toward year-end. For the moment, we maintain our target between 1.10-1.15 against the euro and 1.35-1.40 against the Swiss franc.
The weakness in the yen is becoming more pronounced as many market participants begin to give up on the notion that the Chinese will revalue their currency anytime soon. In addition, Japanese monetary authorities have been quite vocal in their calls for continued "ultra loose monetary policy." With oil surging - and hurting the Japanese economy - the yen has had little choice but to continue lower. Although it, too, may need a well deserved rest in the 109-113 band, we are maintaining our medium-term target between 120-125.
The path of the Canadian dollar has been admittedly complex and seems to be linked largely to sentiment on oil. We maintain a negative view of the Canadian dollar, believing as before that the combination of domestic political turmoil and the difficulties we believe the Canadian economy will experience later this year should combine to lower the loonie over the next three to six months. Our medium-term target for the Canadian dollar remains between 1.35 and 1.40 late in 2005 or early in 2006.
Both the Australian and New Zealand dollars are also following a reasonably good script and heading lower, as per our expectations. With clear evidence now that both the Australian and New Zealand currencies are weakening, we expect the interest rate prop to be removed from these two, which will eventually lead to lower prices, perhaps even substantially so. For the moment, we are maintaining our target for the Australian dollar in the low .60s, while we very much expect the Kiwi dollars to trade into the .58-.61 trading zone.
Editor's Note: Dr. Hans Black is editor of Interinvest Review & Outlook, P.O. Box 51462, Boston, MA 02205, 1 year, 12 issues, $125. Interinvest is a global money management firm. www.interinvest.com
