Many Asian Currencies Continue to Advance

Posted April 13, 2009

Asian currencies remain on the move as investors seek higher yielding assets. The most notable exception was the Japanese yen as the country finds indications in price data that deflation is possible.

 

The yen weakened against most major global currencies as investors continue to move to higher yielding markets.  Japan has received new data which indicates wholesale prices are dropping which is raising fears of deflation.  The Bank of Japan Deputy Governor Yamaguchi said the government can only do so much to bring the recession to an end through monetary policy.  The benchmark interest rate currently stands at .1 percent. This has raised questions as to what alternatives are being discussed.

The yen fell against the US dollar to 100.55 yen; fell against the euro to 132.981 yen; and fell against the Australian dollar (72.86 yen) and the New Zealand dollar (58.44 yen). 

Asian currencies were the most volatile over the weekend once again.  Thailand experienced a riot initiated by anti-government protestors which has raised concerns of a possible civil war.  The Prime Minister, Abhisit Vejjajiva, declared a state of emergency while obviously ordering restraint by the military in their handling of the rioters. 

The troubles in Thailand led to the currency continuing to weaken.  The Thailand baht fell to 35.68 baht per US dollar.  It also fell against the Singapore dollar to 17.5 Singapore cents per baht.  The S&P has already lowered the credit rating outlook from stable to negative.  Thailand has the second largest Southeast Asia economy.

Other Asian currencies fared better as they continued gains started earlier last week.  In fact, seven out of the ten major Asian currencies rose against the US dollar.  This excludes the yen as discussed earlier.  Investors are investing in Asian currencies as they seek higher yielding assets.

The Indonesia rupiah strengthened to 11,110 rupiah per US dollar.  Also rising was the Philippine peso (47.783 peso per US dollar) and the Taiwan dollar (NT$33.6970).  Much of the increase is due to increased governmental stimulus spending and indications Asian exports have fallen as low as they are going to go.

Continuing to look at Asian markets, the South Korean won also strengthened against the US dollar to a level not seen since 7-January-2008.  It rose in response to increased investor holdings as stock markets rallied.  The won strengthened to 1,329.50 won per US dollar.  The South Korean government reported the GDP contraction is slowing and predicts 2008 will end with an overall shrinkage of 2.4%.

The Canadian dollar rose to C$1.2217 against the US dollar or 81.86 US cents in response to signs commodity prices are rising. 

In the US, there are many investor concerns over what the bank stress tests, being performed by the US government, will show.  US Treasury Secretary Geithner has already indicated some banks will need additional significant cash assistance in order to survive.  The government report is to be published by the end of April and bad news could lead to increasing investor concerns over the real state of the economy.

Though there are sings of hope the recession is seeking bottom, there are real worries over the fact no one really knows what condition the banking industry is in at this point.  The US banks are still holding toxic assets and credit is still tight. In addition, the US budget deficit for March 2009 is at $92.3 billion.   A year ago, March 2008, the deficit was at $48.2 billion so it has almost doubled in one year.

The US dollar weakened to $1.3219 dollars per euro and $1.47443 dollars per UK pound. 

There are several major financial institutions reporting the first quarter results for 2008 this week.  They include Goldman Sachs Group, Inc. and JP Morgan Chase & Co.  Wells Fargo reported surging income last week as a result of its Wachovia Corp. purchase which led a stock market rally.  It is doubtful the other financial companies will be issuing such good news.

 

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