Finally we get a solid move on the fundamentals, as last nights downgrade of U.S debt from Chinese ratings agency “Dagong” sent the U.S Dollar spiralling down.
Now Dagong is no “Moody’s or Fitch” ( currently rating on “negative watch” ) but this in itself brings about a very interesting point.
A Chinese ratings agency having such a significant impact on the dollar? Wow.
You might expect this kind of move given that a “reputable” agency in the U.S gave the “thumbs down” on the debt ceiling debacle sure…but a Chinese ratings agency?
As the largest holder of U.S Debt / Treasury Securities on the planet it is now painfully clear how much influence China truly has. The agency suggested that, while a default has been averted by a last-minute agreement in Congress, the fundamental situation of debt growth outpacing fiscal income and GDP remains unchanged. “Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future”.
Kicking the can a couple of months further down the road makes little difference when the U.S will just be back in the news then…..still unable to pay its bills.
The short USD trades obviously made big moves here overnight, but not exactly as expected. Great gains in EUR, GBP as well CHF but oddly the “commodity currencies” have shot higher. An interesting dynamic and certainly one to keep an eye on as NZD as well AUD approach overbought levels.
Gold up a wopping 34 bucks here this morning, so perhaps we’ve got the “risk off” flows on the move.