Canadian Dollar, Brazil Real and South African Rand All Too Strong

Posted October 27, 2009

The Canadian dollar, Brazil real, and South African rand have gained too much strength per their respective central banks. The Mexican peso rose against the US dollar as US home prices increased. The UK pound also rose on the news retail sales have risen by a percent not seen in 2 years.

 

The Canadian dollar, Brazil real, and South African rand have gained too much strength per their respective central banks. The Mexican peso rose against the US dollar as US home prices increased. The UK pound also rose on the news retail sales have risen by a percent not seen in 2 years.

The Canadian dollar began to strengthen again after 4 days of declines. The nation’s monetary policy makers have repeatedly expressed concern over the strong loonie but it continues to rise anyway. A strong Canadian dollar impairs the economic recovery by making exports more expensive.

The Canadian dollar strengthened to 93.90 US cents or C$1.0690. The government has indicated that it might be necessary to institute a policy of quantitative easing or additional other stimulus programs to inject new life into the pace of the recovery. But analysts are not reading too much into the comments at this point and do not seem to fear currency intervention.

The Mexican peso has been quiet lately but yesterday it rose by .5 percent. The peso is now worth 13.2227 pesos per US dollar. Mexico’s peso is benefitting from the increases in the price of a barrel or oil and indications the US home price index increased in August. The Mexican economy relies on exports to the US to generate revenues.

Mexico has been in the throes of a budget battle concerning the best steps to take to plug a large shortfall in next year’s budget. Only the income portion of next year’s budget has been addressed  to date and lawmakers must now deal with lowering budgeted expenses to bring the budget into balance. It is critical the budget be balanced to avoid another credit rating downgrade.

The UK report issued by the Confederation of British Industry brought good news. It revealed that the UK retail sales have risen at a two-year high rate in October. Interestingly the 3rd quarter GDP numbers showed a contraction of .4 percent. The question now is whether the Bank of England should resume its bond buying program.

The UK pound rose against most major global currencies and was at 90.73 pence per euro.  When paired with the US dollar it was at $1.6335.

The Swedish krona weakened to 10.29214 krona per euro and to 5.9447 krona per US dollar. The krona was responding to a drop in US consumer confidence numbers which have caused concern as to the true state of the global economic recovery. In addition, the price of Norway’s manufactured goods declined in September by .9 percent. Norway’s central bank is expected to raise the benchmark interest rate at its meeting this week.

The Norway krone fell to 8.3687 krone per euro and to 5.6488 krone per US dollar.

As the global economic picture readjusts to the post-recession financial conditions, there are some difficult issues arising for various countries. For example, Brazil’s real has risen by 33 percent this year alone against the US dollar. It fell slightly yesterday by .3 percent yesterday to 1.7378 reais per US dollar but that is not expected to continue. The central bank has been buying US dollars but the real is expected to continue rising without strong intervention.

The South African rand is another currency that has been strengthening and the government has indicated it would intervene if it were financially possible to do so. The rand has strengthened by 24 percent this year despite falling yesterday after the government indicated it believed the rand is too strong.

The South African rand weakened to 7.6518 against the US dollar. As commodity prices have risen, foreign capital inflows have increased also.

 

Comment