Posted December 22, 2009
The Canadian dollar was the leading currency yesterday as the nation’s economy improves. The US dollar is strengthening against most major global currencies as investors wait to see if US Federal Reserve will move up the end of stimulus programs. The South African rand fell as investors unwind carry trades. The Swiss franc was stable against the euro.
The US dollar is strengthening as the US Federal Reserve considers withdrawing stimulus monetary programs in light of a now expanding economy. The GDP in the US grew by 2.2 percent for the third quarter of 2009. Though less than the 2.8 percent predicted, the fact the economy is back on a growth status is encouraging to US citizens and global markets.
The US dollar strengthened to $1.4275 against the euro and to 91.19 yen per dollar. In fact the greenback rose against most major global currencies yesterday. The one exception was the Canadian dollar. Analysts believe there is a normalization of the US economy in progress which is strengthening the dollar.
The Canadian dollar rose against all major global currencies including the US dollar. The loonie strengthened to C$1.0624 against the US dollar. One Canadian dollar will purchase 94.12 US cents. The Canadian dollar also rose to a high against the euro not seen since November 2008. The loonie strengthened to C$1.5120 against the euro.
The Canadians have much to celebrate in terms of the pace of recovery. Oil prices have risen and oil is one of Canada’s largest exports. Oil is now at $72.47 a barrel for January delivery.
In addition, the Canadian economy is improving. Retail sales have increased for eight of the last ten months as of October. The October retail sales number showed a .8 percent increase compared to the prior month. The Canadian dollar has risen by 15 percent against the US dollar this year. Investors are buying the loonie as it strengthens in the face of a slow European Union economic recovery.
The European economy recovery is lagging behind that of the US and Canada but there are still serious debt problems in Eastern Europe. The European Commission reported in its quarterly report though that the Euro-Zone will see GDP expansion in 2010 of .7 percent. Though a tepid growth rate, it is an expansion nonetheless.
Mexico was back in the news as the peso fell to 12.9275 pesos per dollar. This was one of the steepest declines among Latin American countries. One of the reasons for the drop is the impending holiday. Investors are selling riskier assets to minimize their exposure to year end volatility through the holidays.
Emerging market currencies are weakening in general as commodity prices fall. Though oil prices, as mentioned, have risen to over $72 a barrel again, the prices are not stable. Gold prices are declining also with a troy ounce now selling for $1,096 per ounce.
The South African rand fell against the US dollar to 7.6689 rands per dollar. With signs of global recovery in progress, investors are less likely to rely on higher yielding riskier assets as the US dollar strengthens. Investors borrowed cheap dollars to fund carry trades in other global currencies.
The impact of the unwinding of carry trades is one of the unknowns right now. A US dollar that rises too quickly could force investors to exit the riskier assets at a quicker pace than would be healthy for the economy.
The rand has risen 23 percent this year against the US dollar.
The Swiss franc held at 1.4948 francs per euro. The Swiss National Bank is letting the franc operate in the currency market without interference while keeping an eye on any signs of franc appreciation. The Swiss economy is improving and is expected to grow to up to 1 percent next year.