Possible revaluation of hryvnia

[wxman]

Interesting article about the hryvnia. There's a push to lower the rate to 2.5 hryvnia to 1 USD. Pretty much would kill the tourist industry from the US. Will be interesting to see which way it goes after the 1st of the year.

http://www.kyivweekly.com/?art=1196873551

[2tallbill]

It would also substantially reduce exports although I am not sure how much they export to the US. Of course this could improve US imports if they don't have confiscatory import duties. I guess time will tell.

Bill

[Nat]

wxman, I've heard about the plans to do it 4.95 hrivnas for 1 dollar, which is quite possible. But 2.5 hryvnia to 1 USD is very unlikely to be true

[wxman]

Nat,

I thought it was a wild estimate too. Fixing a currency like that would cause major problems. I would venture to guess that if Ukraine truly let their currency float on the markets, it may indeed go the other way.  Instead 2.5 to 1 USD it would go to 6 or 7 to 1 and possibly much higher.

[William3rd]

Either approach would put it out of synch with the Euro and that relationship is of more importance to Ukraine.

[alantodd]

Part of my work is with currency trading and it should be trading below 5 to 1 (probably 4.5 to 4.9).  That being said China RMB is being controlled as well so the government could go 2.5 to 1 in Ukraine (this would destroy Ukraine and make 50 new corrupt billionaires).  The Euro should still get stronger against the dollar in 2008 but this is going to kill Western Europe in the future.  Companies are not investing in making product anymore in Western Europe with the high Euro.  Wages are to high for the hours  / quality of work Europeans perform.  Impact of a high currency takes a couple of years to see impact of lost investment.

USA economy is in good position in 2009 for whoever the new president is to act like they actually had something to do with the strengthening dollar. 

Very few people from USA go to Ukraine for tourism.  But lowering to 2.5 also adjusts Euro.  Not a good thing for tourism.

[Shadow]

\  Companies are not investing in making product anymore in Western Europe with the high Euro.  Wages are to high for the hours  / quality of work Europeans perform.  Impact of a high currency takes a couple of years to see impact of lost investment.

Many European companies already shifted production to the Far East or the USA, which means they will profit from the high currency.
At east the Dutch as trading coutry manage to get profit out of any currency situation .

[Nat]

Nat,

I thought it was a wild estimate too. Fixing a currency like that would cause major problems. I would venture to guess that if Ukraine truly let their currency float on the markets, it may indeed go the other way.  Instead 2.5 to 1 USD it would go to 6 or 7 to 1 and possibly much higher.

Well, I'm not very good at economics and investments, but dollar used to be much higher several years ago here - it was 5.45 to 1. But then it fell down in one night and became 5.05 to 1. A lot of time passed since then and the economy seems to be quite ok. So why not to lower it to 4.95? It’s absolutely possible. On the other hand a lot of people (and me as well) will loose these 3% of their investments on such fluctuations.
Btw, severasl days ago euro was 7.58 to 1, now it's 7.43 to 1. Mean euro!

The Euro should still get stronger against the dollar in 2008 but this is going to kill Western Europe in the future.  Companies are not investing in making product anymore in Western Europe with the high Euro.  Wages are to high for the hours  / quality of work Europeans perform.  Impact of a high currency takes a couple of years to see impact of lost investment.

USA economy is in good position in 2009 for whoever the new president is to act like they actually had something to do with the strengthening dollar. 

Do you mean that in 2009 dollar will be higher than euro? I've hear that it's better to get rid of dollars, but may be it's worth to do visa versa and buy them while they are cheap?

[timothe]

Do you mean that in 2009 dollar will be higher than euro? I've hear that it's better to get rid of dollars, but may be it's worth to do visa versa and buy them while they are cheap?

Alantodd knows more about this than I do, but I think he's trying to say that the US Dollar has not hit its bottom yet.  From a stock market perspective, I agree with this assessment.  There is not enough money to lend in the US right now...that's why our interest rates continue to fall and foreign investors are supplying credit to US banks. 

I would not buy or sell the US Dollar right now.  There isn't enough downside to sell and there's too much downward pressure to buy.  The short term play is to buy US companies that do large amounts of business in foreign countries and then turn their foreign profits into US currency.  McDonald's is a very conservative play on the dollar right now and would work even if the US Economy heads into recession.  (it is not in recession now)

[wxman]

The dollar has made a nice rebound this past week against the euro. From close to 1.50:1 to 1.43:1. The fact that inflation is now growing at a faster pace than expected, it is highly unlikely the fed will lower the rate any more. Thus the rebound in the dollar. I've read that most are now thinking the dollar has hit bottom and will improve during 2008. OL Greenspan has already used the words "stagflation" and "recession" and his words still have some weight. Also read that this year gasoline demand has fallen for the first time in years. I think the fed has done just about all it can right now, and lowering interest rates wll probably be dead in the water for some tiime. But as any investor will tell you, never panic and never worry about the short term.

[alantodd]

I was not very clear in my post.  I should have said high paid jobs will be leaving Western Europe soon (this has already started).  These would be finance, accounting, and engineering.  Euro is to high and you can find good people to do these jobs in USA, India, China, Mexico, and Brazil at cheaper costs with better quality.  London will not be impacted as they are the financial hub for Europe like New York is for USA.  Netherlands is a huge shipping port based on geography so not as impacted.

Dollar will get weaker in 2008.  I see dollar getting stronger in 2009.   People trading USA dollar missed out on the big downside.  The increase will be to gradual to make good money.  I have all my property debt in Ukraine in USA dollars since I make money in USA $'s (no risk to me).  Personally I want Ukraine $ go to 2 to 1 vs. USA dollar and than I can dump my property at a good price before the country collapses.  Than buy property very cheap and put debt in Ukraine currency when country is in financial crisis.  I think Ukraine learned from last collapse but you never know with the corruption there. 

Ukraine market (outside of black market) is agriculture, military, and information technology.  Wheat is way up in price and thousands of highly skilled IT professionals.  They could strengthen Ukraine dollar a little vs Euro and USA dollar with no problem.  A little tip if you see Ukraine dollar go to 2.5 to 1 vs dollar.  Buy a bunch of debt in Ukraine dollar as eventually it will be trading at least 10 to 1.  Going to 2.5 to 1 is too quick of an adjustment.

[wxman]

Alan,

Would you think that even if Ukraine revalues the currency to 2:1 US, the Euro would probably still be as strong and not flucuate much against the dollar by 2009? Anyone travelling there would exchange dollars to Euro before entering Ukraine and then exchanging to hryvnia once there. So instead of getting a 2:1 rate of exchange it would be back closer to 5:1. Of course Ukraine could then sell all it's dollars for Euro and then exhange back to hryvnia doubling their profits.

[Makkin]

  Dollar rebounds in 2008 to 1.35 and then again in 2009 at about 1.22. Europe see's inflation in a stronger way through 2009 in a bell curve manner.(Euro vs dollar)

  No devaluation of the dollar in Ukraine till November 2008 where she  comes down from 5.50 to about 5.25.

  Opinion at it's best..lol

Makkin

[wxman]

Right now the bank of Ukraine is holding the US dollar exchange rate at 5.05:1 USD through the 1st of the year. It's getting harder and harder to find many vendors willing to exchange currency for more than that right now, with most vendors in Ukraine already offering slightly less. Not much confidence in the dollar over there right now.

[Makkin]

  The Ukrainian money is less dependable than American dollar and I'd suggest looking closer at that aspect. If the Canadian and Australian dollar gets less than the American then what about those currencies?
  I believe that if the dollar was a stock I'd drop it in a heartbeat but alas it's not a stock and has much more to do with the security of the US dollar than the Ukrainian Hvy. Suicide for Ukraine in many ways to walk into the meat-grinder known as the currencey speculation and risk. Go ahead and throw the dice cause that's what it would be in my opinion.

Makkin

Makkin

[wxman]

The currency market has become like the oil market. There is no sound reason why oil should be at $90 a barrel other than for rampant speculation. Plenty of supply, but too many playing the oil game, just like those who played the real estate game.  Last one holding the card will be in trouble. First we had the dot com implosion, then the real estate implosion, next will be the International fund implosion, oil implosion and who knows what else.

[Makkin]

 I agree. 

Makkin

[2tallbill]

The currency market has become like the oil market. There is no sound reason why oil should be at $90 a barrel other than for rampant speculation. Plenty of supply, but too many playing the oil game, just like those who played the real estate game.  Last one holding the card will be in trouble. First we had the dot com implosion, then the real estate implosion, next will be the International fund implosion, oil implosion and who knows what else.

I agree, I think if you had a few extra dollars to speculate with (not rent money) selling short 6 months to a year
down the road you could make a couple of bucks.

Bill