There can be no doubt we are living in the scariest economic conditions of 2 generations, and the central banks representing every major currency (US, Japan, England, etc . . . ) are attempting to cope with the situation. The methods they use to cope have a direct effect on the value of the currency moving within the economy they are acting on behalf of. Our own Ben Bernanke was a divisive influence in Japan’s response to its own economic meltdown, which began in the 90s. His advice was the same to Japan as it has been towards us, lower interest rates, purchase our own bonds, and so on. The funny thing about this strategy is that Japan’s economy is just as bad as it was when Bernanke began advising them; in fact it is worse.
What this means to traders is that we have an idea of how Bernanke’s solutions will impact the United States in the near future, the long and short of it is this: The future of United States currency is certainly not good.
While this is certainly an area in which politics could be applied I am going to go ahead and avoid this aspect of the topic in question and focus specifically on the economics. By lowering interest rates and purchasing its own bonds the United States Federal Reserve bank is inevitably encouraging deflation of the same type we have seen in Japan for years now. This is a critical fact for all traders because the dollar has been doing much more falling than rising against other major currencies but deflation is definitely on the horizon.
Bearing this in mind we have to make some critical distinctions between the US and Japan, Japan is primarily a country of export while the United States is the world’s largest importer of foreign goods.
These factors are huge when considering Bernanke’s effect on the US economy with regard to his chosen strategies. Unstable is not the word for what is coming, meltdown maybe? In any event if you ask me the dollar is going to do a breakaway surge sometime in the near future once America realizes the need to produce domestically again is not just idle speculation.
The greater the risk the greater the reward has been the credo of all business people for hundreds of years. The risk (and potential reward) are about to go through the roof if Japan is any indication of what is to come. The USD|CAD would be a particularly appetizing pair for me if deflation does happen to come upon America in droves. This is all speculation on my part, please do with it what you will but remember to keep your wits about you and never act without properly considering your position and the possibilities.