Posted February 11, 2010
The Japanese yen and US dollar fell against the Australian dollar as the Australian economy significantly improves. The European Commission continues to work on a rescue for Greece. Canada’s dollar strengthened against the US dollar as oil prices rose. China continues to keep the yuan pegged against the US dollar. The Vietnamese dong was devalued to reduce the trade deficit and restore confidence in the currency.
The yen fell against the euro to 123.96 yen. The US dollar also fell against the common currency to $1.3777 euro per dollar. The US dollar was only slightly changed against the yen at 89.97 yen.
The bigger news was Australia’s surge in new jobs in December. The Australian unemployment rate fell to 5.3 percent in January after 52,700 more people were hired. This was excellent news for Australia and it was news that caused a ripple effect through the financial markets.
The likelihood of the Australian central bank increasing the benchmark interest rates before the end of the second quarter grew much stronger with the jobs news. The Australian dollar buys 88.78 US cents. The Aussie strengthened also to 79.89 yen.
Also affecting the strength of the US dollar and yen was news from China that indicated consumer prices did not advance as much expected. Weaker inflation data means China will not tighten monetary policy as quickly as was expected.
The euro is riding on expected news that a rescue for Greece has been hammered out among Euro-Zone countries. The financial markets are anticipating an announcement at any time. The leading countries during the discussions have been Germany and France. The common region policies prohibit one member country from assuming another member country’s debt which means a solution will involve some kind of joint assistance.
Greece is expected to make difficult but necessary economic decisions that will lead to progressive declines in the budget deficit by the end of 2012. Germany wants to make it clear that assistance will not be rewarding poor debt management practices. Other countries in trouble include Portugal and Spain, and the European Commission expects member nations to make the harsh budget cuts needed to bring their budgets back into line. The goal is protection of the euro as a viable currency.
Greece is considering a number of unpopular measures including wage freezes, tax increases, and pay cuts for public employees. There have been strikes by civil servants ongoing in protest of the budget reducing recommendations.
The Canadian dollar strengthened again against the US dollar to C$1.0632. Oil prices climbed to $74.45 a barrel which revived demand for commodity based currencies. Investors are also accepting more risk again in the belief a Greece rescue is in the making. One Canadian dollar buys 94.07 US cents.
The Mexican peso fell to 13.1303 peso per US dollar.
China is refusing to let the yuan appreciate and will continue to maintain the yuan’s peg against the US dollar. This is despite US calls for yuan appreciation. Some analysts believe China’s refusal to allow the yuan to operate under normal market conditions is a message to the US that China will not be pressured nor accept blame for the US trade deficit.
The Chinese yuan is at 6.6770 yuan per US dollar.
China’s military leader called for a sell-off of US debt held by China in retaliation for US arms sales to Taiwan. Though this is unlikely to happen, there is concern that the Chinese are able to interfere in US policies on the basis of the sheer amount of US debt held by China. China currently holds $787 billion in US debt.
The Vietnamese dong was devalued in an attempt to reduce a trade deficit. The dong is at 18,725 dong per US dollar. The devaluation involved lowering the reference rate to 5 percent. In addition, the trading band was tightened to 3 percent.