Posted October 30, 2009
Poland’s central bank voted to keep its benchmark interest rate at the same level. Canada’s dollar rose against the US dollar as reports show the US GDP grew in the 3rd quarter. Mexico’s peso also gained on US economic news. The UK pound rose as new mortgage approvals increase.
The Canadian dollar began to rise again even as the government indicated the currency was becoming too strong to maintain economic recovery at a reasonable pace. The increase followed a US government report showing the US economy expanded in the 3rd quarter of 2009 by 3.3 percent. This is the first report of US expansion this year and a clear sign the recession is ending. The report took analysts by surprise for the expansion numbers exceeded all estimates.
The Canadian dollar, called the loonie, rose to 93.70 US cents or C$1.0672. The loonie will still post an overall weakness for the week. The Bank of Canada Governor Mark Carney made public statements on 20-October-2009 warning the currency is appreciating too quickly and too much in order to sustain economic recovery.
With the improving US economy came increasing investor willingness to take on risk. Stock markets rose as investors looked for profits. In addition, commodity prices are increasing again with December future oil deliveries now at $8.02 per barrel. Canada’s economy is commodity export based.
The Brazil real has begun to appreciate once again. The real has been the fastest appreciating emerging market currency this year when paired with the US dollar. The real rose to 1.7306 reais per US dollar which is a 2.7 percent increase in a single day. This volatility was not welcomed as the government recently added a tax on foreign investments to slow the rate of currency appreciation. At the time the tax was imposed most analysts agreed it would not be enough to prevent the real from strengthening. Yesterday’s currency activity proved them right.
Mexico’s peso rose on the US economic news of GDP expansion. Mexico’s economy is dependent on the US economy with up to 80 percent of Mexican exports destined for the US. The peso strengthened to 13.0638 pesos per US dollar.
Mexico’s government is trying to come to agreement on how to plug a budget deficit for 2010. The country’s credit rating is sure to be downgraded if the deficit is not narrowed. Currently the budget gap is widening as oil output falls.
The UK pound strengthened against the US dollar again after a report indicated mortgage approvals increased in September. This is excellent news since it indicates credit markets are loosening for consumers finally. The pound rose to $1.6574 against the US dollar. It also rose against the euro to 89.48 pence per euro and against the yen to 151.51 yen.
The European Central Bank has indicated it is making plans to begin withdrawing stimulus programs in 2010. The plan is to begin with the longest term loans made to banks over the last year. In the UK the Bank of England monetary policy makers are trying to decide if they need to extend, continue to suspend, or end the quantitative easing program currently in place.
The Polish central bank has voted to maintain its benchmark interest rate at the current level. Right now the interest is at 3.5 percent. Poland is carefully monitoring the risk of inflation and has been tightening monetary policy in other ways. The bank has a target inflation rate of 3.5 percent and the actual rate is already pushing the target.