You can’t really make a long-term bullish case for the buck right now. Sure, the dollar has had a strong rally recently, but that doesn’t change the fundamentals. We’re still looking at no interest rate hikes, a fiscal deficit that continues to grow, and weak consumption, thanks to an historic credit squeeze and real estate deflation.

And yet the buck has been getting a lot of love since early August – rallying nearly 8% against a basket of major currencies. What gives? Do global investors see positive factors we don’t? Hardly. Overseas investors are simply taking advantage of cheap dollar-based assets and 2009 growth prospects for the U.S. economy that are more compelling than for other major economies.

In short, almost certainly, what we’re looking at right now is not a new dollar bull market, but a cyclical bear market rally. That’s exactly what happened in 2005 as the dollar rallied 12.8% versus the euro and other currencies. But back then the Fed was raising short-term interest rates and the U.S. economy was still firing on all cylinders.

It’s quite a different story now.

In fact, the only thing that could keep the dollar rally going is a continued deterioration of other major economies while U.S. growth accelerates.