Columbian Peso Slumps as Venezuela Talks Tough

Posted July 29, 2009

The Columbian peso slumped as Venezuela threatens to cut off imports. The US recession finally seems to be close to bottoming and expansion is expected to resume this year. The Canadian loonie fell a second day as oil and commodity prices fall.


It seems to be time for an economic review this week in the US.  Though countries like China and the global emerging markets are expected to play a larger role in future financial stability and growth, the condition of the US economy is a major part of the equation when it comes to predicting the end of the worldwide recession. 

Many analysts are not hesitant to say that as the US goes, so goes the rest of the world.  Though the US will not be the first country to begin to recover from the recession, it’s recovery is essential to global financial success due to its sheer size and economic power.

The Federal Reserve issued their assessment of the US economy and where it currently stands.  The Federal Reserve indicated that all 12 Reserve regions have reported that economic decline is easing and has been for the last 2 months. Unfortunately the US financial institution also said that economic activity is still weak despite a slowdown in the contraction rate.

The general consensus among Federal Reserve officials and investors is that the recession bottom is near and growth should resume at some point between now and the end of the year.  Unemployment is expected to remain high though well into 2010.

Linked to the condition of the US economy, and the fact that US financial markets were the primary cause of the global recession, is the dependency on the US dollar as the reserve currency.  China and other emerging markets have called for a currency reserve that is not dependent on the US dollar.  It seems there is really no other currency to replace the dollar and so the odds are the US dollar will maintain its status for many years.

But it is interesting to note that without any policy chances, the US dollar accounts for only 64 percent of total currency reserves around the world and before the recession that number was at 73 percent.  The euro’s share of currency reserves has risen to 26.5 percent from 17.9 percent.

It appears the recession is forcing some adjustments through the normal operation of the markets. 

The Japanese yen fell against both the euro and the US dollar as investors continue to move money into higher yielding assets.  The yen fell against most major global currencies which is fueling opinions that the recession is about to reverse.

The yen fell to 133.62 yen per euro and to 95.02 yen per US dollar.

Canada’s dollar fell again as oil and commodity prices continue to fall also.  The loonie has been one of the best performing currencies during July.  The Canadian dollar fell to C$1.0899 against the US dollar or to 91.75 US cents.  This is the second straight day the loonie has weakened.

Crude oil for September delivery is currently at $63.35 a barrel.

The Columbian criticisms of Venezuela’s dealings with the US led to Venezuela threatening to freeze Columbian imports.  Columbia exports to Venezuela far exceed imports and such a freeze could lead to a major loss of dollar flows. 

The Columbian peso fell rapidly as the rhetoric heated up.  The peso weakened to 2,075 pesos per dollar from 2,023.53 pesos.  Columbian President Chavez has been very vocal in his opposition to Venezuelan President Uribe’s ties with the US.  Venezuela is allowing the US to use the country’s air strips in its drug war fights. 

As the US equity market rises, the Mexican peso suffers.  The country has experienced the 8th straight decline in remittances.  Remittances are the country’s major source of dollar flows. 

The Mexican peso fell to 13.2539 peso per US Dollar.