The US stock market spent most of the day rising, and then in the last 45 minutes took a nosedive.  The DJIA closed down 82.99 points to reach 7,886.57 while erasing investor hopes for an interrupted, if slow, increase.

In the “old” days, which weren’t so long ago, you could have guessed with great reliability that the US dollar would strengthen as the equity market fell.  But in this odd recession, there are odd and mixed results always occurring.  The US dollar both fell and rose as the markets struggle to understand the real and true conditions of the US banking system.

The reason the stock markets fell in the US is because of growing concern the government stress testing of the banks is going to report weaknesses that will require additional government intervention to correct.  The test results are to be reported May 4th, and it could very well be a very bumpy ride in the equity and currency markets.  The US President is still considering partial nationalization event though the word “nationalize” is being avoided.  But what else will you call an exchange of bailout money for common stock?

Yesterday, the Canadian weakened against the US dollar, while the yen advanced.  The loonie fell to C$1.2394 once again following the US stock market trend.  Canada’s economy is closely tied to the US economy in a number of ways including through exports.  The Bank of Canada is expected to discuss Canadian monetary policy tomorrow and there are expectations quantitative easing may be implemented.

In Japan, the export decline has slowed which is good news for a country worried about entering a depression.  The yen strengthened to 98.09 yen per US dollar. It also gained against the euro to 127.57 yen per euro. 

The UK pound continued its decline as the government announced plans to sell 220 billion pounds of gilts to stimulate the economy.  The pound weakened against the US dollar, the yen, the Swiss franc, and the euro.    The pound dropped to $1.4485 US dollars and weakened against the euro to 89.80 pence.  Prime Minister Brown has been under enormous criticism for allowing the national debt to rise to historic levels.

The US dollar weakened against the Australian and New Zealand dollars.  The inflation rate in Australia is now at the lowest level it has been at in 18 months.  The Australian government reported the inflation for the first quarter of 2009 was 2.5 percent. 

The Aussie weakened to 70.78 US cents. The New Zealand dollar fell to 55.61 US cents.  The Australian government is planning on increasing the amount of government debt to stimulate the economy.   The Australian dollar also weakened against the yen to 70.24 yen and the New Zealand dollar fell to 54.40 yen.

In other parts of the world, the South Korea won and the Indonesia Rupiah both strengthened against the US dollar as investors became hungrier for risk.  The won rose to 1,348.1 won per dollar.  The rupiah arose to 10,848 per US dollar.

The International Monetary Fund released a report today which predicted the global recession will be deeper and last longer than previously predicted.  The projection now says the global economy will contract by 1.3 percent.  The IMF had previously predicted there would be a .5 percent expansion.

The unresolved issue is the one concerning toxic assets.  Not only are banks still wondering how to cleanse their balance sheets of these assets, they are experiencing rising credit losses.