The dollar is too strong – Plain and simple

Outlook: The dollar is too strong–plain and simple. It’s the highest against the CAD in well over two years. It’s stronger against all the major currencies, even the safe-haven Swissie, and most emerging market currencies. After what seems to be PM Kishida denial of intervention or policy change, the yen weakened–again. Gold and oil are down, although that inverse correlation is tricky and unreliable.

As noted yesterday, it’s time for a retreat, and the Schaff indicator (bottom window) points that way, too.

And yet the US yield, the bulwark of the dollar’s gains, continues to rise and is nearing the 4% from Sept 28, a 14-year high. With CPI arriving Thursday, we might expect talk of peak inflation if it’s weaker than forecast, but if it’s even a little higher, we’d have to expect talk again of 100 bp in November or at least 75 bp in December instead of the 50 bp now priced in.

Something strange–Fed Vice Chair Brainard said yesterday the Fed should “exercise caution: and move forward “deliberately" and in a "data-dependent manner." This is to keep track of how (and where) the hikes already done are affecting various sectors. Well, gee, no kidding. Nobody has tried to make a mountain out of this molehill, but just wait.

Meanwhile, geopolitical developments are going badly–for everyone. Putin is throwing his Trumpy 4-year old temper tantrum in the form of killing Ukrainian citizens and wrecking critical infrastructure because he is losing the war (and lost that bridge to Crimea). The West is trying to figure out how to help without triggering WW III (which we are already in). Yesterday Pres Biden spoke with Pres Zelensky and is offering “advanced air defense systems,” whatever that means.

At some point, the war in Ukraine has to start affecting economies and markets more than just through the oil/natgas and agricultural sectors. As a rule, US at war means a stronger dollar. Just saying.

Inflation Tidbit: No sooner do the S. California ports clear up than something else comes along–a sinking Mississippi River. It’s too low, and over 100 ships are backed up. These carry the heavy stuff like agricultural goods and one report says soybeans and corn are not even one quarter harvested yet. That leaves rail and truck, already on their last nerve.

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