Swine Flu Continues to Influence Currencies

Posted April 27, 2009

The swine flu scare led to the continued weakening of many currencies including the Chile peso, the Malaysian ringgit, the Brazil real and the Mexican peso. The weakening of the Poland zloty over the last months will prevent the country from joining the euro by early 2012.

 

The swine flu is still having an impact on various currencies as investors worry about negative influences on the global economy.  Some of the more notable currencies weakening against the US dollar and/or the yen include the Chile peso, the Malaysian ringgit, the Singapore dollar, the Brazil real, and of course, the Mexican peso. 

The reason the swine flu is considered an economic threat is twofold.  First is the fact people are being discouraged from doing unnecessary travel, especially to Mexico.  In addition, it requires massive government health spending to make a sincere attempt to contain the spread of the flu, and this is during a recession when debt is already hitting new historic highs.

The Mexican peso fell over 4 percent to 13.9060 pesos per dollar on Monday, 27 April 2009.  It is regrettable the country has been hit with this problem after recently getting an expanded credit line from the International Monetary Fund.  The IMF agreement had begun to restore investor confidence in the country’s ability to deal with the recession.

There is agreement the appearance of the swine flu at this moment in history is a case of back luck.  In Mexico alone, tourism dollars are worth $13.3 billion to the economy. 

Also impacted by the swine flu is the Chile peso which ended Monday significantly weaker against the dollar.  The Chile peso fell to 600.30 pesos per dollar.  Year-to-date the peso has strengthened against the US dollar by 6.78 precent.

The Brazil real also weakened as investors drew back in the face of the swine flu threat.  The Brazil real fell to 2.2045 real per US dollar.  It is the uncertainty of how the swine flu will impact the economy that is causing some currencies, such as the real, to weaken.  The Brazil real has traditionally fallen any time investors seek safe haven assets.

The Malaysian ringgit fell against the US dollar also after strengthening the last two days.  The ringgit weakened to 3.5988 ringgits per US dollar.  Also causing the weakening was investor speculation the central bank intends on cutting the benchmark interest rate before the week ends.  The prediction is the Malaysia central bank will cut the rate by 25 basis points to 1.75 percent.

The Singapore dollar fell to S$1.4936 against the US dollar.  The Thailand baht fell also to 35.42 baht per US dollar. 

China’s economy is showing definite signs of economic recovery in response to stimulus spending.  The Chinese yuan strengthened to 6.8250 yuan per US dollar as domestic demand increases.

Poland had planned on joining the euro by 2012, but it appears the recession may cause a delay.  The Polish zloty has lost more than 22 percent of its value when paired with the euro since last October.  It did strengthen to 4.53 zloty per euro after the government announced access to an IMF Flexible Credit Line similar to the credit line awarded Mexico.

Canada saw a weakening in its dollar against the US dollar. Commodity prices declined putting pressure on the loonie which fell to C$1.2193 against the US dollar or 82.01 US cents.

The US dollar rose against all major global currencies except for the yen.  The US economy contracted 4.7 percent in the first quarter of 2009.  The US auto makers have been back in the news as both Chrysler and General Motors announced plans which may keep the companies viable but in a much smaller way.

Chrysler finally reached agreements with the United Auto Workers and the Canadian Auto Workers.  The details of the agreement were not discussed, but it does appear Fiat, an Italian auto manufacturer, will buy 20 percent of Chrysler and provide technology in return.  There are other hurdles Chrysler must jump including a debt-for-equity swap agreement with banks, but no one was sure the company would get this far.

General Motors has also been working on a restructuring plan and will cease selling the Pontiac line in addition to cutting 21,000 US jobs.  The auto company is expected to trade debt-for-equity with the US government.

 

Comment