Australian Dollar Advances as Banks Increase Lending

Posted February 26, 2010

The Australian dollar advanced against the US dollar and the Japanese yen as the Aussie banks increased lending for another month. The dollar and yen fell against most global currencies as global recovery strengthens. Europe is faced with a possible double dip recession due to excessive debt and budget deficits in several countries. The South Korean won strengthened as the manufacturing forecast rose. The Brazil real rose on signs of Asian economic improvements.


The dollar and yen fell as the recovery pushes ahead despite high rates of unemployment. Investors are willing to assume more risk as the Asian stocks gained yesterday. The US dollar fell to $1.3597 against the euro. The Nikkei 225 stock market rose .6 percent.

The Japanese yen weakened against the US dollar to 89.25 yen and against the euro to 121.36 yen.

There are many signs that the global economy is strengthening slowly but surely. In Japan, the retail figures rose more than expected which took many economists by surprise. Sales rose by 2.6 percent compared to the prior year. Also, Australia’s bank lending rose which means that the central bank could very well look at another increase in the benchmark interest rate soon.  Australia’s current interest rate is at 3.75 percent compared to zero to .25 percent in the US.

The Australian dollar increased to 89.08 US cents and to 79.51 yen. The Reserve Bank of Australia saw an increase in January lending of .4 percent.

The Brazil real put in a strong performance yesterday when it gained 3.9 percent. Brazil’s benchmark interest rate is at 8.75 percent which attract investors when they are ready to take on some risk.

South Korea saw its won strengthen to 1,159.30 won per US dollar. The manufacturing index forecast for March in this Asian country rose to 101.

The UK consumer confidence index advanced to minus 14 for February. Though still negative it shows a continued improvement from the January index at minus 17.  The economy grew by .1 percent in the fourth quarter of 2009.  Signs of recovery are coming in time for the mandatory June election.

The Bank of England is considering whether to resume the asset purchase program which was one component of the stimulus programs put in place during the recession. The program has been paused, but if there are signs that the recovery is faltering the asset buying can resume.

The UK inflation rate was at 3.5 percent in January but it is expected to fall back to 2 percent in February.

In Europe, the ongoing financial problems are threatening to throw the region back into a recession. The fourth quarter stagnation seems to be carrying over into 2010 and has now been aggravated by massive debt and budget deficits.  The euro is under pressure against the US dollar as a threat of a double dip recession looms.

The European Commission indicated yesterday that an advance in economic recovery may not be seen until the fourth quarter of 2010. The benchmark interest rate is expect to remain at 1 percent for most of the year. Many analysts are still predicting the euro could fall to $1.30 against the US dollar.

There are calls again by some US congressmen for tariffs on Chinese imports. The US has repeatedly asked China to let the yuan strengthen in order to better balance the global trade market, but China has refused. China intervenes in the currency market and is holding the yuan at 6.83 yuan per US dollar. There is now a US call for duties as high as 27.5 percent to be placed on all Chinese imports.