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BNY Mellon Chief Currency Strategist Michael Woolfolk on the potential risks of another U.S. credit rating downgrade and the potential investment oppo...
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Up a little bit of a breaking angle here that not a lot of people are talking about and it was only until my next guest Michael Wolf look jumped up on here he is a currency expert for Bank of New York Mellon piece of lists.
Watch out if Washington is unable to come up with a deal or comes up with a deal that.
The ratings agencies don't like and -- -- downgraded the US credit rating gets downgraded.
This could be a real problem but right now the greenback is the flight equality let's get to Michael right now it's a Fox Business just listen to.
You and I were just talking in the commercial break he said watch out.
Sleepy already downgraded the US a year ago August 2.
Not triple as -- so word double -- right you look at what's going on whether it's Fitch or Moody's and if we get another downgrade how will that affect people's money and their investment.
It's well.
I think that is the concern is that.
Moody's and Fitch decided to to downgrade the US if they don't get the deal that they like we -- it's possible to get a deal.
But then not one that they feel comfortable.
If that's the case you have two of the three made major credit rating agencies who have downgraded the US from triple -- that proves negative for the stock market certainly we saw.
Back in August of 2011 when standard poor's downgraded -- US.
10% drop in the stock market ahead of -- decision another 8% after the decision but we -- the money -- it went in to US treasuries and the greenback the US dollar.
And that's our view our view is that if we get a downgrade.
Then that is in fact what's going to happen.
Perversely the US dollar would benefit as a safe haven currency.
Perhaps even do this -- -- safe haven Japanese yen would benefit temporarily as Japanese bring their own money back home.
Risk and then although the US is downgraded.
US treasuries actually stands from room to gain up but the yes for example.
-- falling today infected hit its lowest level in two years the dollar's gain against the yen is the best that we've seen in what about five or six years it's it -- since 05 release -- seven years.
What you like out -- what are if I could ask you to pick two different currencies do you feel.
If people want to dabble -- have that as a slice of their investment pie where should they be putting.
Their money.
I think the mistake -- 2012 is betting against the Euro.
The fact that it's a Greece exiting the Euro -- is is gonna drag down the Euro with.
-- I don't think that that's we want to play that this coming year.
The Euro is supported by trade and investment flows I think that to keep it funny even T think we wanna focus is on those currencies that had an interest rate advantage.
I think you folks focus on those currencies that have -- export led growth particularly those that are linked to commodities I'd like to Canadian dollar for 2013.
And emerging market -- I also like the south African Rand some large producer of course a precious metals.
Okay -- dollar north of the border I get that.
But you're looking at a south African Rand where there is.
-- -- reading political climate sometimes there you have strikes at the very metal mines and natural resource minds of people talk about.
Why do you feel that that that's sort of a play that people might be at least considering.
Well I think that as the US dollar weakens on improving conditions this year.
That -- helps to -- we.
Commodity prices.
Okay that that is good for investment in those countries that are major commodity X exporter itself very well over the past year they had they have higher interest rates.
Then UCC in many G-7 market -- really looking for.
He emerging market play.
That is not sensitive to the currency wars right now it's not Brazil.
-- Brazil is all up in arms about the policy here in the United States in England in.
Japan zero interest rates quantitative -- short the rail -- percent you would want to short the reality I think that.
They're probably gonna be one of the weaker -- emerging market currencies in 2013 what else would you short.
Well I I.
Really don't like.
You know those currencies where you have you know the political strife.
In combination with economic problems and right now.
Although I wouldn't don't want to -- shorty the Euro outright I think that that certainly when you would wanna avoid.
Those in the periphery let's say in that Central Europe perhaps could be another currency that you would want to avoid.
Goes a long look at dollar long -- the South Africa program perhaps the rest of the worst currency this coming year is a Japanese yet well yeah stalling -- at -- 10% out of the Japanese and the new the new leadership -- basis he is going to spend a lot so that's gonna cut down.
We're happy new year Moscow thank you thank you for being here Michael Wolf focus BNY Mellon chief currency strategist Dow Jones and us.
