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The Petrodollar Dominoes: How The Strong Dollar Is Slamming Oil Exporters (And Other BRICs)
A week ago the Russian Ruble exhibited intraday volatility that makes the JPY look quiet when it crashed to record lows then soared dramatically on intervention hopes. Since then we have had a Russian Central Bank disappointment and some jawboning which did nothing press the Ruble to record-er lows against the USD. Then today, last week's volatility in the Ruble was dwarfed when USDRUB blew past 48.5 only to be sent soaring (USDRUB lower) below 46 on hope of intervention. Russia is not alone. The Saudi Riyal has seen massive vol in recent weeks and Nigeria, another oil-producing nation, saw the Naira collapse yesterday then soar 8 handles this morning on what is confirmed intervention by the nation's central bank. It appears the strong dollar is becoming an issue for the world's oil-producing nations...
Ruble vol explodes on hopes for interventions...
Russian Ruble a bit more unstable than usual (purple in this currency chart) pic.twitter.com/Cs7kmwN9Jy
— Eric Scott Hunsader (@nanexllc) November 7, 2014
And Nigeria's Naira plunged then soared today on confirmed intervention...
And then there is the massive volatility in the Saudi Riyal
As the humpties of the BRICS fall off the wall one by one...
It would appear the strong dollar is having significant implications for the rest of the world.
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Bank of Russia has issued a statement
- *BANK OF RUSSIA READY TO INCREASE INTERVENTIONS AT ANY TIME
- *BANK OF RUSSIA: WEAKER RUBLE NOT NEEDED FOR BALANCE OF PAYMENTS
- *BANK OF RUSSIA SEES RUBLE VOLATITY CONTINUING AS MKT ADAPTS
- *RUBLE NEEDS TIME TO ADAPT TO NEW POLICIES: BANK OF RUSSIA
On the foreign exchange market
In recent months, the dynamics of the ruble exchange rate and its impact on the financial and real sectors of the economy is causing concern. The observed weakening of the ruble caused by a number of fundamental factors, primarily, lower oil prices and limited access to external capital markets.
In order to limit the rate of depreciation of the ruble only during October the Bank of Russia intervened in the amount of 30 billion. US dollars.
The Bank of Russia November 5, 2014 decision to change the mechanism of exchange rate policy, along with an increase in the key rate and the introduction of currency repos are part of a package of measures aimed at ensuring financial and price stability in the new environment.
Changes in the exchange rate policy aimed at accelerating ruble equilibrium value, the rate of reduction of excess spending reserves, preventing the formation of stable devaluation expectations in continuous depreciation of the ruble. In addition, this solution will help minimize the impact of the foreign exchange market on the structural liquidity deficit. At that exchange rate flexibility achieved allow to mitigate the impact of external shocks on the financial sector and the economy as a whole.
In accordance with the decision logic course started to adjust, which is accompanied by an increase in volatility. The adaptation process of the currency market to a new mechanism of exchange rate policy will take some time, during which there may be multi-directional movement of the course.
According to the Bank of Russia, taking into account the package of measures and the depreciation of the incident further weakening of the ruble is not required to achieve the balance of payments.
In recent days, there are signs of excessive demand, which creates conditions for the formation of the risks to financial stability. In these circumstances, the Bank of Russia is ready to increase foreign exchange intervention at any moment, and to use other means at its disposal financial market instruments.
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Charts: Bloomberg
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Your produce, our profit Bitchezz!!
until the BRICS start dumping those dollars
Cheap money drives out hard money. It will become profitable to take out a ruble loan even with the interest rate. Say to sell lumber, or open a mine, farm or anything else you would normaly take out a loan for.
It is working as intended as the short positions are opened to cover the banks long ruble positions.
Looks like the ruble just exploded.
for what? they have to pump to make money and their product is priced in dollars... QED
Suck it, world! We're buying all your stuff for pennies on the dollar (pun intended). And tomorrow morning you know what we're gonna do? Wake up, poof some more of those strong dollars into existance and do it all over again.
No pun achieved.
Damn, if we only had a world currency to get around that pesky volatility.....
Well, if they'd all just use the USD, we wouldn't have a problem, would we? Damned annoying countries wanting to have their own currencies. Can't they see how much better things would be if they would just do it our way?
You forgot the sarc tag. I know but many do not.
This is the new ZH. We don't need no stinkin' /s tag. If you don't know by now, tough shit.
currency peg chickens doing the moon walk toward the roost .....
Go for the Gold!
http://blogs-images.forbes.com/johngaudiosi/files/2012/07/michael-phelps...
About Russia. They're exporting natural gas to China? I'm sure a devalued Ruble would make demand greater in China where the Remnimbi is artificially devalue.d The Hong Kong dollar is backed by the U.S. Federal Reserve- they're always free to hedge says the Wannabe MRs. Wasabi Wantanabe Obi Wan Kenobi.
ANYBODY is smarter than the U.S. boomer voting majority kleptocrats who kind of used housing to rob people and being too stupid to hedge purchasing power in OPEC's basket of currencies during quantitative easing to fuel the gas guzzlers and the price inelastic gas tax.
The reason why the U.S. economy failed is because the voting majority is a failed chemistry experiment with a shared 2 braincells between them. All 78 million of them.
No seriously. Look at their choice of reps on K&J Streets.
What do you call an American voter with 2 brain cells?
Pregnant.
"No seriously. Look at their choice of reps on K&J Streets. "
They(we) have no other choice except to write in or not vote at all. It is a closed system. Any third party is crushed with media attacks and IRS audits.
Cheaper AK-74's for Christmas gifts.
Only if they're the ones made in Romania or China or anywhere other than Russia. "Sanctions" bitchez!
Currency crisis? what currency crisis?
everything is
bullish as fuck™!
2 quick thoughts on NFP
1) i have doubts the "experts" at BLS realize how much retail holiday shopping has been pulled forward ... which means hiring earlier (and likely laying off earlier). If not accounted this would create an artificial boost to sept/oct numbers that is really not there
2)BLS conducts its week long survey in the week of the 12th. Well, october 12th 2013 was at the end of week 2 of month. This year the 12th was at the beginning of week 3. Huge implications re: holiday hiring ... and was this adjusted correctly, as well?
King Dollar not slamming just oil exporters ... exporters in general.
we'll be importing deflation (at their expense of inflation)
Can yee guys over in Zero hedge land make out this moonshot.
http://www.tradingeconomics.com/united-states/external-debt
Has the US just posted the bill for world growth post WWII to everybody ?
until 2014, reaching an all time high of 16940277 USD Million in the second quarter of 2014 and a record low of -4782773 USD Million in the first quarter of 2014
16,940,277 USD.
Nearly 17 trillion baby.
As Tommy Cooper often said.
"Just like DAT"
http://www.youtube.com/watch?v=AO-wUBwGzYw
December will be a good time for the USA to default(again).
"Has the US just posted the bill for world growth post WWII to everybody ? "
US gave 'em the Marshall Plan, Berlin Airlift, underwritten Israel, has forgiven Trillions of Dollars in inflation adjusted loans all over the World including several billions to Iraq just last month, received millions of economic refugees from central/south america and beyond ever year for decades, and been the policeman for most of Europe, Japan Taiwan, South Korea, and Saudi Arabia and many more for over 30 years.
"Iraq's oil will pay for this..." was the line we were fed by Bush when he and Cheney Inc. decided it was time to pull the plug on Saddaam.
It's about god-damned time that the CITIZENRY of Untied States -NOT the MIC or the fucking globalist corporations- get paid back for three or four generations of propping and protecting half the fucking planet with money, food and guns instead of just a few thousand families of Oligarchs and war profiteering robber barrons.
wait wait the petrodollar is dead!!! really!!!! hyperinflation just around the corner...any day now....any day.....almost here.......just ask john williams......he has been saying its just around the corner for 10 years.....and kyle bass!!!! the govt was going to kill the value of the dollar...really!! a congressman told him so!!..........
Hyper-inflation is when you try to pay a bill in a dead currency. Of course stupid will accept a dead currency as long as the price is right.
The strong dollar is the recipe for the dollar's ultimate demise (against gold). Makes it easier for China to drain the last bullion out of the West with a strong dollar if/once they to decide to do that in earnest. The officially 2200T imported in 2013 (this likely does not include stealth purchases of their national bank) was just the foreplay. They still have some 4T dollar$ in their war chest... When they exchange only some ~10% for bullion, then watch out with your "newly printed and appreciating dollars". As far as the oil (and also gold) producers go, the paper pushers have dropped the price to or close (and for some below) the cost of production. That is non-sustainable and the ever-increasing strains in the system will ultimately resolved in a very violent manner. It's all an epic shyte show in a slow making, but that's just my 2 ounces.
Correction to the above. The 2200T are the retail demand within China, the official import numbers were 1500T, and the remainder was from recycling (~250T) and domestic mining ops (~450T). BUT it is very likely that the PBOC has imported much more additional gold in stealth ways, but how much is currently not known. When they reveal their true holdings it could be a real shocker - some speculate it could be as much as 5k tons or even more. Koos Jansen has the best data on China's gold numbers. A big hat tip to him - his work is now published at https://www.bullionstar.com/blog/koos-jansen
Paul Krugman must be a huge fan of Russia. They hit 10-20% inflation in a single week!
BRICS are full in debt in USDs
The strong dollar shows the petrodollar in far from dead. It should be but skillful positioning, manuvering and killing has allowed it to remain. The strong dollar is used against Russia and Russia would like to take it down, and Russia Needs to take it down and soon. Otherwise Russia will start to suffer and the elites in Russia will (see gas sales to WUkrain at a discount no less) will choose profits over long term Russian interests.
Funny thing, Russia would be able to do real damage to the petrodollar if Russia/Putin had taken a stand with Iraq, Libya, Syria and others. That should have been clear but the chess playing hype is just a myth I am afraid. Just think if all those countries were under the shield of the Russia flag (and nukes) and they all were refusing to use the dollar. Master chess player my butt.
The j-mafia keeps printing dollars, some of it on the books some of it off the books and directly into their various accounts, and it is the rest of the world who pays the price when they use the dollar. As others have pointed out, they print it (just digital digits, do not even need paper anymore) and buy real assets.
OK, maybe I am missing something...
Now a sinking Ruble means that the cost of extractions for Russian Oil and Gas becomes more competitive... so I do not see reasons for being too happy, while the cost of what we do increases, including oil and gas? It means that all the sanctions we put in place with Russia are firing backwards BIG TIME.
They can actually expand their share of energy supply even in a contracting demand at the expenses of... well whoever is using USD. Actually they get rich just selling in USD. The only "good" (and I use the term "good" loosely) side in all of this is that they might be tempted to keep supporting the petrodollar system. How screwed up is that/are we??????
And what the f***k are you guys smoking???
Ruble loans. The ruble is falling because banks need to open hedges on the ruble loans they make. The more ruble loans they make the more open short ruble hedges they need. Dollars go up because those same dollar loans are being paid off, so dollar short positions are being closed.
Banker logic is all about what they can sell you, and what they need to buy to protect themselves. The world is all about what is good or bad for banks, not what is good or bad for people.
yes BBQ, and while it is true that financial distortions can be huge... as the name DERIVATIVES comes from, they are DERIVED, based on underlaying real assets. So... real economy and prices can certainly be influenced by financial manipulations but only up to a certain point and in the short term. The underlaying trends will eventually emerge when the cost of manipulation overcomes its benefits...
It means... if you give a real competitive advantage to Russians, it will work against us in the long run.
I am not sure Central Bankers are anymore in control of anything. Even because different approaches and different rules to play by, are emerging. As an analogy it means that while our bankers think they are playing soccer as they always did, on the other side they are starting to play... a totally different game... rugby, or dodgeball? So thinking preparing and executing strategies for soccer will not help them to play a game against an opponent in a rugby stadium. It might actually be a massacre... Sometimes there is a total disconnection between reality and bankers' thinking and that is one of our biggest problem.
OK, this is a bit much.
You are saying all the postings and articles about how Russia, China and some others were trying to stop using the dollar, to end the petro dollar with the intent to weaken as much as possible were incorrect. That Putin is trying to strengthen the dollar as much as possible and is trying to keep the petrodollar because that will be the downfall of the US.
And you are saying having the Ruble decrease in value is part of the plan because the weaker the Ruble gets the stronger Russia is.
Confusing.
Or is this just Putin love where no matter which way things go it must be good for Russia and part of Putins master plan.
Guess that means having the Ruble decrease by 90% from here would be the end of the US, the Fed better get busy supporting the Ruble.
Oh gosh, stumpy no, it was not made on purpouse there is no cospiracy or master plan... and surely there is nothing friendly in a USA-Russian relationship. Putin is not helping. However we are doing most of the damages ourselves. Trying to fix one side, we end up with creating problems someplace else...
And yes a weaker Ruble will make Russia stronger at least in a strategical sector like oil and gas supply.
The cost of taking natural resources out from the ground is different in different countries, from Arabia, Venezuela, Iraq, Algeria, USA. If the Rubles goes down, their cost to access those resources is in Rubles... it goes down as well. It is really common sense.
So can we now quit all this "petrodollar is dead", "dollar is dead" BS?
OK, maybe I am missing something...
Now a sinking Ruble means that the cost of extractions of Russian Oil and Gas becomes more competitive... so I do not see reasons for being too happy, while the cost of what we do increases, including oil and gas extraction on US soil? It means that all the sanctions we put in place with Russia are firing backwards BIG TIME.
They can actually expand their share of energy supply even in a contracting demand at the expenses of... well whoever is using USD. Actually they get rich just selling in USD. The only "good" (and I use the term "good" loosely) side in all of this is that they might be tempted to keep supporting the petrodollar system. How screwed up is that/are we in getting in a situation like this??????
When a strong shift in currencies occurs someone gets hurt and this leads to bankruptcy and contagion. A great deal of the shadow banking world falls into and overlaps into the grey world of derivatives. There is no single commonly adopted definition of derivative or derivative contract in the European Union. This plays havoc with what and when reporting rules apply. It also highlights divisions in how national regulators view reporting rules for the $693 trillion over-the-counter derivatives market.
Remember this is only part of a much larger market that includes hundreds of trillions of dollars in non-reported agreements and private contracts. Everyone paying attention knows that the size of the derivatives market is 20 times larger than the global economy. The article below explores some of its ins and outs of derivatives and why they could collapse the economic system.
http://brucewilds.blogspot.com/2014/03/derivatives-house-of-cards.html
Last time we had trouble in Asia, a booming Stock market, oil going down, Russia and Saudi Arabia in trouble that was in 1998.
Oil was under 20 USD, and Gold at 250... Very similar shit, next stop in 10 years. Oil at 360 USD and Gold at 4,400 USD.
in hte meantime enjoy the "strong dollar" and booming stock market like in 1999-2000.
The budget deficit is quickly dropping to "at or near zero." (Currently about 400 billion.). That's down from well over one trillion.
Now you have interest rates "at or near zero" with a policy to keep that place "forever" but so much energy is flooding the world market there is a desperate search for the global reserve currency.
This reality is leading to massive speculative blow offs in all sorts of assets in the US the biggest being as usual real estate. The problem with huge real estate bubbles is the huge carrying cost of it. Sorry but the thing is empty and the power is off that thing is a liability not an asset.