INTERVIEW
might translate into a downside potential for the AUD, NZD and other commodity currencies, which are overvalued anyhow.
FXTM Moving on to the US. You have mentioned that the multipliers of fiscal policy are quite high in the EMU at around 1.3. What’s that number in the US?
HR The fiscal multiplier in the US is currently around 0.7. It is still relatively high compared to readings we have seen in Canada and in Sweden in the early 90’s when they were going through fiscal consolidation, but it is coming down.
“By
FXTM We are about to watch yet another episode of the debt ceiling drama later this year. In what way do you think it will impact the USD?
HR I do not expect
the debt ceiling
debate to impact the US currency. It was important in 2010 and 2011, because the economy was weaker and fiscal constraints could have had an additionally negative effect on the already weak economy. What we have learned now is that the US economy is strong and even
though there is fiscal tightening, the impact on the markets will be much lower than in the past.
FXTM A commodity and a reserve currency at the same time – this is what the USD is becoming as we speak. Is the energy boom developing in the US the main factor behind dollar strength?
HR The energy boom is not the only reason for the dollar strength. Of course, you have more income staying in the US; hence there are
2015, the CNY will
FX
supportive for the US. According to the latest data, the US economy outside the financial sector is leveraged at 299% of GDP, which is in the middle of the field. There are countries with lower levels such
as Canada, Australia or
New Zealand, but they rely more heavily on capital imports, so all of these factors are in favor of the United States.
become a reserve currency to the same extent as the USD”
less foreign funding needs as trade numbers are becoming better. The terms of trade-effect are positive. However, the reindustrialization of the US is another important factor. The cost structures in the US are looking better and more competitive compared to cost structures in Asia. Therefore, reindustrialization
means
manufacturing moving out of Asia back into the developed world, mostly to the US and less so to Japan and Europe. Demographics and energy security are clearly
FXTM Lastly - do you think there is scope for the USD’s status as a reserve currency to be challenged by a free floating Chinese Yuan? And what timing are you looking at for a free f loating Remnimbi?
convertible, but that does not mean it will automatically become
the main risks
HR The US Dollar is going to maintain its reserve currency status. One of for
the Chinese
economy is the negative impact of demographics going forward and the convertibility of the CNY will become an issue. I think that by 2015, the currency will become convertible,
but that does not
mean it will automatically become a reserve currency to the same extent as the USD. I expect them to have a share of around 5 - 7% of the global currency reserves, but I can’t really see it moving beyond that.
FX TRADER MAGAZINE July - September 2013
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