USD/SGD readjusted to 1.36 from 1.33

Why did the U.S. Dollar strengthen against all majors in the month of August? Definitely not because the economy is doing well……it is in terrible shape! Definitely not because of the banking and financial industry on Wall Street…………it is a total mess!

The U.S. Dollar strengthened in the last month because of the following reasons: -

1. U.S. dollar repatriation, the capital inflows for the month of August was unusually large compared to same period in 2007.
2. Fall in crude oil prices. Whenever crude oil prices fall, the U.S. Dollar will strengthen, this is because crude oil is traded in U.S. Dollars, everyone around the world will need to buy U.S. Dollars to buy crude for current needs and buying into the futures.
3. Recent acknowledgement that other parts of the world are also experiencing a slowdown in economic growth.
4. Rumours that the U.S. is not in a recession and that it is in a better state of affairs than most people think.
5. Rumours and talk that the Federal Reserve may raise interest rates after 17 cuts down to 2% which a lot of people on Wall Street are starting to think is the blame for all the monetary excesses.

All the above reasons have helped fuelled the U.S. Dollar’s phenomenal rise against all major G7 currencies from the middle of July and the whole of August.

The fact remains that the United States of America has the following fundamental problems: -

1. Domestic current account deficit
2. External current account deficit
3. Current chaos in the banking and financial industry
4. Underlying fundamental economy is in recession
5. Election time and change of guard – new president
6. Falling real estate prices
7. Rising unemployment
8. Rising inflation

All this means: -

1. Uncertainty
2. Gloom
3. Pessimism
4. Panic and fear
5. Defaults
6. Foreclosures
7. Unemployment

All this culminates to a ………………………WEAKER U.S. DOLLAR!

The reality of the U.S. is whether we look at it fundamentally, structurally, economically and politically………………it is going through major……. major life altering and country changing circumstances.

The U.S. Dollar short term strength in July and August is an aberration. The USD/SGD will move back to 1.36 by year end 2008.

We have adjusted our forecast from 1.33 to1.36 purely on the basis that there is still considerable repatriation yet to be completed. However, the fundamentals will speak louder at the end of the day.

Our sister firm, HWH Inc., will be issuing a ‘Clear and Present Danger’ article discussing the current situation, future ramifications, but more importantly, strategies and recommendations to navigate through these difficult times. It will be circulated to all its clients investing friends, should you wish to have a copy of this article, please email; enquiry@hwhinc.net for a copy of this article.