Currency Activity Plentiful Due to Improving Global Markets

Posted August 04, 2009

The US dollar and Japanese yen are still weakening as Latin American and European currencies respond to improving global markets. The Canadian dollar began its climb again as oil prices rose to over $71 a barrel. Russia continues to battle a contracting economy.


The US dollar hit a new low against the euro not seen in 7 months in response to expectations that US pending home sales have risen for the 5th month straight in June by .7 percent.  In addition to improving home sales there are signs that consumer spending is rising also and reports are expected to show a .3 percent increase.

The greenback was at $1.4404 at the end of the day yesterday after reaching the 7 month low of $1.4445.  The US dollar also fell against the Canadian dollar to C$1.0633 which it has not seen since early last October and the UK pound to $1.7002 dollar per pound.

Following the weakening trend was the Japanese yen when it fell to a 7 week low of 137.69 yen per euro.  The yen also fell against the US dollar to 95.33 yen per dollar. 

As currency strategist Danica Hampton of the Bank of New Zealand Ltd told investment site Bloomberg so succinctly, “There is growing conviction the global economy is on the road to recovery and equity markets are posting strong gains.  Investors feel more comfortable holding riskier growth-sensitive currencies, which is weakening the dollar and the yen.”

Interest rates in the US continue to remain at zero and are almost as low in Japan at .3 percent.  The Australian benchmark interest rate is 3 percent and the New Zealand rate remains at 2.3 percent.  That is why investors are turning to countries like these for higher returns.

The Australian dollar was at 84.71 US cents which is close to a 10-month high.  As commodity prices rise the Aussie is expected to follow suit.  The central bank held their long awaited August meeting and chose to keep the interest rate unchanged.

The Aussie also strengthened against the Japanese yen to 80.26 yen per Australian dollar.

The Columbian peso has been recovering after its simmering political feud with Venezuela put downward pressure on the currency’s price.  With oil prices rising to US$71.58 per barrel a barrel, the currency was bound to increase and it reached 2,008.35 pesos per dollar.

Latin American currencies are on the increase as signs appear indicating the global recession is finding bottom.  Emerging economies are expected to recover faster than the economies of the developed nations.

Argentina’s currency is also on the rise.  The peso strengthened to 3.825 pesos per US dollar.  Argentina is making bond interest payments today for $2.25 billion and then hopes to enter the international credit markets once again.

Other Latin American countries reporting currency gains included Chile (539.20 pesos per US dollar) and Peru (2.9695 sol per US dollar).  The Venezuelan bolivar fell to 6.97 bolivar per US dollar.  The bolivar is pegged to the US dollar at 2.15 bolivar per dollar.

As mentioned earlier, the Canadian dollar has been strengthening against the US dollar in an upward trend.  The loonie hit a 10 month high against the greenback with equity market gains driving the rise.  The increase in the price of a barrel of oil is also leading to a stronger Canadian dollar which is now at 93.83 US cents.

The euro is expected to continue to strengthen after breaking a resistance level of $1.4338 against the US dollar.

Russia has been fairly quiet recently but there are now reports that the manufacturing industry is showing signs of easing in contracting rates.  The June production numbers show a 12.1 percent manufacturing decline which is the lowest it has come in at since last September. 

There are calls by Prime Minister Vladimir Putin for the central bank to inject additional stimulus funding into the economy to spur additional gains.  To date there have been 2.5 trillion rubles of government stimulus spending which has not been enough to turn the economy around.