Brazil, Argentina to drop the US$ for internal trade

This has been a good week for the Argentinian Economics Minister Felisa Miceli 54 , trained economist and the country's first female Economics Minister - in a country where macho has a special meaning. Argentina is undergoing a massive influx of US dollars spurred by strong international prices for the country’s export commodities, tourism and the issuing of severeign bonds.

Argentina’s international reserves reached a record US$40 Bn. this week according to the latest release from the Central Bank . The Brazilian real has risen 9.1 % this year against the US dollar , making it the best performer among the 16 most-actively traded currencies that Bloomberg tracks.

The government also reported on Tuesday that Argentina`s unemployment remained below double-digits in the first quarter, falling to 9.8% from 11.4% in the same period a year ago.

Felisa Miceli has taken this opportunity to announce that Argentina and Brazil, the 2 major economies in Mercosur , will drop the U.S. dollar in favor of a regional currency in their bilateral trade starting in October 2007 - which is when President Kirchner, 57, or his wife Cristina Fernandez de Kirchner, 54, both leaders of the ruling Peronist party, will face former Economy Minister Roberto Lavagna (who Kirchner fired) in October's presidential election.

Paradoxically Argentina's economy (2nd largest in South America) has grown more than 8.5% annually in the past 4 years after a $95 billion debt default in late 2001 and subsequent currency devaluation. Lavagna, a former Ambassador to the European Union, headed the restructuring effort. Miseli worked in Lavagna's consultantcy Ecolatina, in the beginning of the 1990s. In May 2002, she became part of Lavagna's team as a representative of the Ministry of Economy before the Central Bank during the presidency of Eduardo Duhalde and at the height of the Argentine economic crisis.

Miseli is generally seen as a follower of Lavagna, and his policies which have broadly been followed by her.

Since its foundation in 1991,South American continent's major trade alliance Mercosur has had the stated primary objective to remove obstacles to internal trade.

The transition to a (as yet unnamed) new currency, is part of a pilot project of Mercosur - whose Finance Ministers met in Paraguy this week - she said the new currency should eventually spread throughout the bloc, which also includes Paraguay, Uruguay, and Venezuela.

Bolivia, Chile, Colombia, Ecuador and Peru have associate member status of Mercosur.

Meanwhile Chavez has said Venezuela is withdrawing from the IMF as he rides the petrodollar wave - don't bet the mortgage on that as the bond market will collapse if he does exits the Washington-based organization as by "gaining economic sovereignty.'' he would trigger a so- called technical default. A clause inserted in most bonds in emerging markets stipulates that there is a default if Venezuela ``ceases to be a member of the IMF or ceases to be eligible to use the general resources of the IMF.''

Mind you he has enough in the piggy bank to pay them off if needed.

US$ down again against surging Eurozone

The euro has risen today to a record against the Japanese yen (Close London 159.95500) and another 2 year high against the US$ (CloseLondon 1.34335).

Traders expect the US$ to reach 1.35 and assume that the forthcoming ECB Governing Council is due to meet this week, on Thursday will put up rates from 3.75% to 4.0% is the only thing stopping a runaway.

The Australian $ was trading @ 82.31 U.S. cents a 19 yera high and is expected to move up to 82.40 - rise of 5.5% in the last month.

The Australian dollar reached 98.09 yen, the highest since May 1997 dealers are expecting it to reach 100 yen over the next six months suported by a increase in the carry trade wityh the opening of the new Financial year.

Australia will nearly double its military deployment in Afghanistan to about 1,000 soldiers by the middle of next year, the country's prime minister, John Howard, announced yesterday, a move supported by the Labour opposition. Special forces are expected in the dangerous Oruzgan province, he added, to beef up the area's security and disrupt Taliban command and supply routes.

Only 1 Australian soldier has been killed in Afghanistan , this year 151 foreign armed forces have died there. 6 Candians were killed when their vehicle was hit by an IED over the weekend.

UPDATE 11/4/07

China's trade surplus almost doubled in the first quarter, widening to US$46.4. billion from $23.3 billion in the first quarter of 2006. China's trade surplus swelled to a record US$177.5 billion last year, helping to fuel a 10.7 % annual growth rate.

Euro riding high

Subsequent to interest in the impact of the prospect of soaring summertime elecricity costs it is worth noting that the US$ is trading at 2 year lows around Eur 1.3433 , this also pushed the euro near a record high against the yen, @ 159.35 yen to the Euro.

In the Pacific region, a decision by the Reserve Bank of Australia to hold rates at 6.25 % (although a rise is expected soon) resulted in the Australian dollar trading at a decade high rate of 81.90 ( 82.15 would be a the highest since 1990).

To the silver watchers a troy ounce was trading US$13.55 overnight - this graph is of interet to people who followed Lord Patel's foray into the market at US$5.60 just before the Iraqi illegal invasion commenced - some see this will double in 5 years. Remember of course that at that time 1US$ = 1 Euro so in Euro values any investing 1 US$ in silver then is now only worth 79 cents. So say you invested US$10,000 in silver it would have been the equivalent of Euuros 10,000. That investment is now worth US$24,200 a rise in US$ value of 240% = Euros 18,058 a rise of 180%. It is this decline in the international purchasing power of the US$ that US emploloyees are paid with, that is starting to affect the ability to pay the VRM (Variable Rate Mortgages) of the prime rate mortgage market.

Of course if the reports that Vice President Cheney bought heavily into Eurobonds will give him little cause to worry about his personal finances. he must however been a bit pissed off when the State of Iran made its first first foreign bond issue in June 2002 since the Islamic revolution despite the withdrawal of its sovereign debt rating by Moody's. The US credit agency withdrew the rating because it was deemed to be inconsistent with US sanctions against Iran. The USD500m eurobond issue went ahead regardless and was barred to US buyers (due to over subscription it was raised to £640 Mn)...which would have been a nice little investment. BNP Paribas and Germany's Commerzbank were acting as lead managers.After the Iraqi illegal invasion you might remember the Oil for Food Funds were whisked away from BNP Paribas to the safety of New York.

Which probably was the reason why the Veep Cheney, speaking to the American Israel Public Affairs Committee (AIPAC),was in a bellicose mood....

"For our part, the United States is keeping all options on the table in addressing the irresponsible conduct of the Iranian regime." Make no mistake, Cheney told the cheering crowds of AIPAC, "we will not allow Iran to have a nuclear weapon".

Beware of Cheney .. never trust a guy who shoots lawyers....and buy silver.