China Drives Currency Markets

Posted February 15, 2010

China’s economy is expected to continue to expand at a fast rate despite monetary policy tightening. The Australian dollar advanced against the US dollar. The euro fell against the US and Canadian dollar as Greece’s debt issues remain unresolved. The Japanese economy grew beyond expectations in the 4th quarter of 2009. The Venezuelan bolivar advanced in the unregulated market. The Chile peso rose against the US dollar as copper prices rebounded.


China’s economic growth seems to be unstoppable despite raising bank reserve amounts. As a result, some global currencies responded by advancing against the US dollar.

The Australian dollar rose to 88.97 US cents. The Aussie’s advance was a response to the analyst projections indicating continued economic growth in China at an advanced pace.  In fact, the Chinese GDP growth rate is projected to fall between 10.0 percent and 11.4 percent.

China is trying to adjust its monetary policy to prevent an asset bubble from developing.

The euro continued to fall and was at $1.3607 yesterday evening. This is close to a nine month low. The European Union (EU) finance ministers are meeting this week to discuss Greece’s debt problem which remains unresolved. There had been expectations a statement would have been issued before now but one is yet to come. The EU has only issued assurances it would not turn its back on Greece, but Germany is maintaining a strong stance against giving financial assistance.

Greece is expected to cut its budget deficit by 4 percent this year. It is unclear what the European Union will do if Greece does not make reasonable progress towards this goal or if Greece is unable to pay its debt. It may be the EU policymakers really are not sure what action they would take since this is an unprecedented situation.

Dubai World is back in the news also. A debt restructuring offer to creditors is being developed and it appears it will offer 60 cents on the dollar at this point. But nothing is definite and it’s uncertain how creditors will react to such an offer.

Japan’s economy expanded by an annualized 4.6 percent in the 4th quarter of 2009. This was more than expected. The impact of the Toyota vehicle recall is unknown.

The euro fell to 122.57 yen per euro.

Venezuela’s bolivar advanced to 6.25 bolivars per US dollar in the unregulated market. This represented a 4 percent increase on a single day. The advance was due to expectations the central bank intends on expanding its auction of dollar bonds.  The bolivar was devalued on 15-January-2010 by President Hugo Chavez forcing the currency to decline by 6.1 percent since that action.

Mexico’s peso remained about the same at 12.936 pesos per dollar. Mexico is preparing to issue bonds worth 15 billion pesos in order to attract foreign investments.

The Canadian dollar fell to C$1.0512 when paired with the US dollar.  One Canadian dollar will buy 95.13 US cents.  Oil prices for March delivery fell to $74.23 per barrel.

The Canadian dollar rose against the euro though as the uncertainty over a Greece bailout continues to make investors nervous.

The US dollar rose against the Brazil real to 1.8544 reais per dollar. It also rose against the South African rand to 7.7175 rand per dollar.

The Chile peso rose to 523.6 pesos per US dollar. The strength of the peso is attributed to rising copper prices. Chile is the largest copper producer in the world and the rising price is significantly increasing export revenues.

The Argentinean peso was about the same at 3.854 pesos per US dollar.