CNBC Just Went There: Oil For Gold-Backed Chinese Yuan

Although the CNBC Analyst did say “The dollar is set to slide but there may be buying opportunities on the way down”. Figure that one out…

From CNBC, John Hardy, Head of FX Strategy at Saxo Bank has a few words about the oil-for-gold

This is the “head of foreign exchange strategy”, who in the interview has a uncertain view of the dollar, and in the article, he has a negative outlook on the dollar, meaning the dollar will begin weakening.

Oddly enough, however, the host, who is not a FX expert less she would exclusively be covering FX, has a recommendation that the dollar is going down but there could be buying opportunities.

Not sure exactly how that works. In a bear market, traders don’t “buy the dips”, they “sell the rips”, but we’ll give her the benefit of the doubt.

Here’s some highlights from the article as well as the brief interview:

The currencies analyst highlighted these three geopolitical issues currently putting pressure on the dollar’s status:

  • The ongoing rise of China as it assumes a more prominent role in global trade and financial markets and in particular how it will manage policy and unwinding the excesses of its credit bubble in the wake of the 19th Party Congress scheduled for October 2017 without upsetting its domestic economy and the global economy,
  • The North Korean regimes striving to maintain credibility and untouchability as a nuclear power and how this impacts China-U.S. relations, but also how Japan deals with this threat in terms of domestic as well as foreign policy,
  • The loosening of the U.S.-Europe transatlantic alliance and how Europe and the EU finds its feet as a more independent superpower — or not — in its own right after the German elections

Hardy extracts “de-dollarization” as a direct theme that can be pulled from China’s situation as the country looks to encourage demand for its yuan.

“China is eyeing the benefits of having its own currency play a larger role and to supplant the USD’s role in global trade,” he said. “The initial focus is on the global oil trade, where it has announced the intention of buying oil in yuan and allowing trade partners to settle that yuan in gold.”

Hardy said settling in gold is a clever move by Beijing as it provides oil-exporting countries with a greater degree of comfort.

China is the world’s largest importer of crude and the analyst forecasted that maintaining a stable currency while buying oil in yuan will be the first steps to increased global demand for renminbi.

“Russia and Iran, long suffering at the hands of U.S. financial and trade sanctions, will be happy participants in this scheme and could provide critical mass. The bigger test will be whether traditional U.S. allies, such as Saudi Arabia, would be willing to risk the ire and financial might of the U.S. by agreeing to receive yuan for oil,” said Hardy.


Hardy added that although his long-term outlook for the dollar was negative, there could be some short-term gains in relation to the appointment of the next Federal Reserve chair.

“Tax reform if it does prove to be Kevin Warsh (as next Fed chair), for example, you could get a bump on the dollar prospects,” he said. “But further down if we are looking at 1.25 or 1.30 it is a question of entry levels for euro-dollar bulls to get involved rather than tactical buys for the dollar,” he said.

It is hard gauge what to make of this. It is certainly anti-dollar. It is not fundamentally pro-gold. It is almost a CYA, Alan Greenspan “The bond market is falling, the bond market is falling” type of warning, or a Lloyd Blankfein “the stock market is falling, the stock market is falling”.

As for the gold story, it sure is a handy way to silence excitement about any possible dethroning of the dollar, in an almost “reverse psychology” kind of way. Though there is already so much controversy regarding a gold-backed yuan, that it isn’t even necessary.

So at this point, it may be helpful to see the dollar point-of-view of CNBC with a little refresher on how this Fed/MSM propaganda machine works (warning – “F” bombs dropped in this hilarious, informational video):