G-8: Thinking of reversing $2 Trillion in Stimulus!

This past weekend, the G-8 (Group of Eight - 8 largest industrialized nations) met and started the talks that will eventually reverse the $2 trillion in global stimulus. Of course, they aren’t about to start this process yet since it was just their Finance Ministers at this meeting…but they were setting up the process for when their central bankers will gather in early July (10th - 12th). Why is this important? Because if these central bankers are comfortable enough in talking about reversing the stimulus, then it means that they really think that the global economy is close to being able to stand on its own two feet once again. If this is the case, it will end up helping riskier currencies in the long run (AUD, NZD, CAD, GBP, etc.) and will hurt the defensive currencies that benefited when the world was falling off of a cliff (USD, JPY, CHF). Now this effect will not be immediate. In fact, the dollar and yen are gaining a bit as of this writing. But after a good pull back, look for the trend to return towards “risk seeking” and not back into the defensive mode as we had before. My top picks, of course: AUD/USD and AUD/JPY to benefit the most…as the G-8 acknowledged the rise in commodities as the global economy is recovering.