Commodity Prices Drag Down Many Currencies

Posted August 06, 2009

The Brazil real fell to a one-month low as commodity prices fell. The Canadian dollar and Chile peso weakened against the US dollar for the same reason. The Israel shekel is weakening due to currency market intervention.


The Brazil real has been on the rise as the largest Latin American economy has shown signs of being close to beginning economic recovery from the recession.  But yesterday, 6-August-2009, the real weakened the most it has in a month reaching 1.8418 real per dollar.

The fall in the real was due to declines in commodity prices for items such as copper, oil and soybeans.  The currency fall lowered the annual gain to 26 percent for 2009.  Copper prices fell by 2.7 percent after US service industry numbers indicated the recession is far from over.

As would be expected with commodity price drops the Canadian dollar also weakened.  Oil prices for September delivery fell to US$71.81 and oil is Canada’s primary export.  The loonie fell to C$1.0777 against the US dollar with one Canadian dollar buying 92.79 US cents.

Canada’s unemployment rate continues to climb with an additional 15,000 jobs cut in the month of July.  This means the nation’s joblessness rate has reached 8.6 percent which is approximately 1 percent below the US unemployment number.

Another currency responding to commodity price increases is the Chile peso.  The peso weakened to lowest it has been against the US dollar in a week. Copper is Chile’s primary and largest export and falling copper prices are putting downward pressure on the peso. The peso weakened to 542.25 per US dollar.

On Friday, 7-August-2009, the US Department of Labor will officially announce the July unemployment figures.  It is expected the number will be a loss of 328,000 jobs forcing the nation’s unemployment rate to 9.6.  The US joblessness rate will probably exceed 10 percent before it begins to fall.

The US dollar strengthened against the Japanese yen to 95.42 yen per dollar.  The yen fell against most major global currencies as investors digested the unemployment numbers.  The yen fell to 137.08 yen per euro.  This is a sign investors are taking on riskier investments once again.

The UK pound weakened to $1.6797 against the US dollar.  The pound also slid against the euro to 85.53 pence per euro.  This was the first decline the pound has experienced in 9 days.  Unfortunately the British government is expected to report the recession is still entrenched and recovery will be slower than hoped.

The Bank of England has decided to expand its stimulus program and the quantitative easing program.  It had hoped that would not be necessary and the economy would begin to turn around with no further intervention.  Apparently the stimulus spending to date and the low benchmark interest rates are not enough to jolt the economy.  (An aside: This is one tough recession!)

The Bank of England expects to expand the asset purchase program to 175 billion pounds.  This represents a 50 billion pound increase.  The UK benchmark interest rate was kept at .5 percent.

The Israel shekel fell again for the fourth straight day.  The shekel weakened to 3.9172 shekels per US dollar.  The Bank of Israel has purchased $500 million of US currency in the market for each of the last 3 days.  The program of dollar purchasing has actually been in place for the last year and it is obvious the intervention to prop up the shekel cannot go on forever.  Eventually the bank will have to exit the currency market for purposes of weakening the shekel.

The South African rand has strengthened by 17 percent against the US dollar in 2009 generating speculation the central bank will intervene in the foreign exchange market to bring the currency down.  The rand is at 8.0612 rand per dollar.