(Capital will flow into an economy with an appreciating exchange rate, driving down real returns).
A widening current-account deficit, an appreciating real exchange rate and low reserves do not help.The latest currency scare occurred after the finance ministry tried to drive down interest rates in the domestic bond market.
Last month, Mervyn King, the governor of the Bank of England, warned that an appreciating pound and euro, combined with most oil-producing countries and China linking their currencies to the dollar, creates "great currency tension".
"Under present circumstances, an appreciating exchange rate could complicate the adjustment under way in the economy," he said in a statement after the RBA's monthly board meeting on Tuesday.
Brazil, which two years ago was grumbling about global "currency wars" and the difficulties presented by an appreciating real, is now confronting the opposite problem: the real has fallen 16% against the dollar in three months.
So far, the analyst said, the strength in its seeds business has offset raw material cost issues and currency headwinds in Brazil, where soybean growers face an appreciating Brazilian Real and unfavorable weather.
The credit boom was created by initially low adjustable rate mortgages, interest-only or negative amortization loans, and an appreciating real estate market that allowed homeowners to extract equity to help make mortgage payments.
But if defaults prove manageable, then the buyers of the paper have the most to fear from an appreciating housing market that lifts the borrowers out of bondage: Homeowners could then refinance and prepay through a lower-rate, normal bank equity line.
His immediate answer: "It would be the worst thing for my company". (His company is 100% owned by Americans, by the way). First, he said, an appreciating renminbi cuts into his company's profits, which lowers bonuses, salaries and dividends for employees in the U.S. Why would anyone want to lower the profits of American companies during a financial crisis?
First, a liquid market need not necessarily be an appreciating market.
But as every country with an appreciating currency knows, there is an ugly flipside.
