The dollar is getting trounced today on word from China that the nation is favoring "stronger currencies over weaker ones".  This opens the door for China to dump U.S. dollars into the open market, further eroding the dollar's value.

So why does this matter to American homeowners?

Mortgage rates are based on the price of mortgage bonds.  And mortgage bonds are priced in U.S. dollars.  So, as the dollar gets weak, the value of mortgage bonds gets weak, too.  Lower values lead to lower demand which, in turn, leads to lower prices.

As the prices for bonds drop, the bond yields increase and mortgage rates go up.

Check out these U.S. dollar statistics from Bloomberg today:

• U.S. dollar is at an all-time low against the Euro
• U.S. dollar is at an all-time low against the Canadie loonie
• U.S. dollar is at a 26-year year low against the British pound
• U.S. dollar is at a 23-year year low against the Australian dollar

Ask yourself: Would you want to be holding an asset that is worth less over time?  Right.  Neither does China, and neither would a whole lot of other countries.

More dollar dumping should push mortgage rates higher going forward.

Source
Dollar Slumps to Record on China's Plans to Diversify Reserves
Agnes Lovasz and Stanley White
Bloomberg.com, November 7, 2007 07:17 EST
http://www.bloomberg.com/apps/news?pid=20601087&sid=abxV_7HapdYk&refer=home

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.