Posted December 22, 2008
Auto industry drove import/export projections leading to volatile currency rates. The yen fell against the euro and the dollar.
It was reported that currency traders are making big bonuses because of currency market volatility leading to frequent and increasing trade amounts. This trend is expected to continue into 2009 as global markets continue to deal with a financial crisis that is still in the making. Currency rates affect a lot more than bonuses though. They also affect import and export rates and the downward trends are causing new problems for both developed and emerging markets.
The industry currently making the most headlines is the auto industry in both the United States and Japan. The auto industry is driving a lot more than cars right now as General Motors and Chrysler in the United States face bankruptcy and Japan's Toyota announced its first projected operating loss. As unemployment rates rise around the world, people are spending less on big ticket items such as autos. Sales have braked to new lows as demand plummets.
US President Bush announced a temporary loan bailout that was roughly half of what the big auto makers requested. There are also some wage parity requirements attached which say the US wage rates for auto workers must be brought into line with US auto workers employed at US plants owned by foreign countries. The requirements are worded as targets and not requirements and the financial condition of the industry will not be greatly improved with this loan. It is basically "limping along" money.
Then Toyota Motor Corp. announced that sales of its vehicles had declined and the increasing yen rates had led to a major drop in exports. In the past few months the yen has risen to highs against the dollar not seen in over 13 years recording a 24% appreciation. Toyota expects to report losing money at the end of the fiscal year in March 2009. But with the confirmation of auto export declines, the yen weakened against the US dollar as of Sunday, 21/December/2008 falling to $.01119. It also weakened against the euro reaching 125.60 yen per euro as of Friday 19/Deember/2008.
Australian, New Zealand and Canadian dollar rates have also been impacted by the auto industry woes. Canada has offered a loan to help prop up the auto industry, because the country has many supplier companies relying on the big 3 US auto companies to stay in business. In addition, oil is one of Canada's major exports and accounts for up to 21% of the Bank of Canada's Commodity Price Index. But the Canadian government is in the process of restructuring bank insolvent paper and the impending agreement has led to a strengthening of the Canadian dollar ($.8290) against the US dollar.
The Australian dollar ($.6817) and New Zealand dollars ($.5769) rose against the US dollar also on the news of the US auto bailout loan announced by President Bush. Investors are speculating there will be purchases of higher yielding assets. The two currencies also gained against the yen.
The other export most affecting currency rates is oil. The price of a barrel of crude oil continues to decline. In Russia, an oil blend was trading at $39.82 a barrel. The plunge in oil prices has created a drawdown of the currency reserves account by Bank Rossii in order to prevent continued devaluation of the ruble. Bank Rossii currency reserves have dropped by 27%. The ruble ($.0360) has weakened against the dollar to lows not seen in 3 years. As of yesterday rubles were trading at 27.7350 rubles per US dollar.
The auto industry bailout story is far from over, but it is clear that good or bad news will have a major impact on currency rates around the world. With a new incoming US President in January, there is a lot of uncertainty about the next steps that will be taken in regards to the money problems that are threatening to sink an entire industry.