Currencies Respond to Drop in US March Retail Sales

Posted April 15, 2009

The yen strengthened against the US dollar and euro as US retail sales fall in March. The Indonesian rupiah is poised to gain as the country's stimulus efforts begin to take hold. Global markets are giving mixed signals as to the status of the recession.


China, in the news every day during the G-20 summit, is now on a path of least resistance.  The yuan was allowed to appreciate 21 percent since July 2008, but is now stabilized at a rate around 6.83.  Yesterday the yuan was at 6.8320 yuan per US dollar and today it is at 6.8324 yuan per dollar.

China’s economy remains weak, but that is the story around the world.  In the US, the March retail sales figures took investors by surprise and fell 1.1 percent.  The Dow Jones Industrial Average saw a 137.63 point fall to close below 8,000 again at 7,920.18.  This was a 1.71 percent decrease.  The FTSE 100 closed virtually unchanged (3,988.99), while the NIKKEI dropped .92 percent (8,842.68).

US President Barack Obama delivered a 45 minute speech yesterday and made it clear that economic conditions are showing signs of improvement in some areas, but the signs are weak.  But the good news is that it appears banks might be stronger than first thought, even as US Treasury Secretary Geithner said the banking industry will need further cash injections to achieve stability.

Who are investors to believe?  The currency markets responded to the retail sales figures by seeking safe haven yet again.  The yen, considered a measure of investment risk taking, strengthened against both the US dollar and the euro.  The yen ended yesterday at 98.74 yen per US dollar and 131.02 yen per euro.

There are some expectations the US dollar will weaken over time and in a gradual manner.  In the past month, the greenback has weakened against the majority of major global currencies.  The weakening is expected largely due to the massive amount of debt being incurred by the US.  The Obama administration is busy spending and printing money.  Part of the reason for his economic speech to the nation yesterday was to justify the money printing even as Goldman Sachs asked to pay back TARP funds.

The US dollar strengthened against the euro by early this morning in the US to $1.3276.  It has also strengthened against the Swiss francs to 1.1370 francs per US dollar.  But against the Canadian dollar the US dollar saw its lowest level seen since the end of January this year at C$1.2066.

The UK believes it is seeing the bottom of the housing market fall.  Average sales of homes are expected to rise in the coming months as credit begins to loosen.  Mortgage approvals in February 2009 hit a nine-month high. 

The UK pound rose to $1.4952 against the US dollar.  It also strengthened against the yen (148.63 yen per pound) and against the euro (88.27 pence per euro).  The Bank of England is expected to buy 3.5 billion pounds of gilts today to increase currency circulation in a policy of quantitative easing.

The Australian and New Zealand dollars weakened again against the US dollar.  The Aussie fell to 71.52 US cents and the kiwi fell to 57.52 US cents.  The weakening was a general response to the slumping US retail sales report which gives clear signals the recession is still in full swing.

The Indonesian rupiah is expected to continue its strengthening against the US dollar.  Yesterday it rose to 10,910 rupiah per US dollar.  This is the highest it has been since 8-January-2009.  The rupiah has seen an 8 percent decline in the last 3 months against the US dollar, but Bank Indonesia Governor Boediono is optimistic about the economic future of the country. 

It is possible that mixed signals coming from global governments is the real sign the recession may be finding bottom finally.  Even weak positive data is welcomed heartily by the markets.  The recovery from this recession is clearly going to be long and difficult…just like the recession itself.