Currency Markets Moving on Economic Indicators

Posted July 02, 2009

The Japanese yen fell as investors seek profits in higher yielding assets. The Israel shekel strengthened on signs the country’s economy will recover from the recession quickly. The Brazil real rose after reports indicated the country had a June trade surplus.


The Polish zloty continued its climb against the euro after the World Bank agreed to lend the country $4.5 billion.  The Polish GDP is the only economy in this part of the world that is expected to expand in 2009.  The projected growth is .2 percent.

The zloty strengthened by 2.2 percent yesterday to reach 4.3549 against the euro.  Poland expects to report a fall in its unemployment rate for the fourth month in a row.

The Group of Eight meets next week and there had been speculation China wanted to add an agenda item related to its desire for a new world reserve currency not dependent on the US dollar.  But He Yafei, the Chinese Vice Foreign Minister, said he was not aware of any such item and hoped the US dollar will remain stable.

China has some self-interest in the status quo because a drop in the US currency value would mean a decrease in the value of the Chinese investments placed in US Treasury assets.  As a result of the official’s comments, the US dollar strengthened against most global currencies including the euro and yen.

The dollar rose to $1.4109 against the euro and to 96.60 yen.

The yen also rose against the euro to 136.31 yen at one point during the day and then fell back to a two-week low of 136.89.  As investors become risk-takers again, the yen is expected to weaken as money is moved into higher yielding assets. 

The benchmark interest rates in developed markets remain low with Japan’s rate at .1 percent and the US rate at zero percent.  Australia’s benchmark interest rate is at 3 percent.  The New Zealand rate is 2.5 percent.  Rates are even higher in many of the European and Latin American countries.  So as the global economy stabilizes, it is fully expected there will be major shifts of money into the higher yielding investments.

Mexico’s peso was back in the news after a significant strengthening against the US dollar.  The peso rose to 13.0586 when paired with the US dollar which is the highest it has been in 30 days.  The increase was in response to figures showing US manufacturing output contracted at a slower rate in June.

What is interesting to note is that the peso rose even though Mexico’s own remittances continued to fall.  In fact they fell 20 percent in May which equates to $1.9 billion when compared to May 2008.

The Israeli shekel strengthened against the US dollar amid signs the country’s economy may be able to recover much faster than originally anticipated.  The shekel strengthened to 3.8585 shekels per US dollar late yesterday New York time.  It is predicted the Israel economy could expand by 2 percent next year compared to a 1.1 percent contraction for 2009.

Brazil’s real is still on the upward climb and rose to 1.9325 reals per US dollar.  Brazil reported a trade surplus in June in the amount of $4.6 billion.  The real is expected to end the year at an even stronger rate.

Columbia’s peso also strengthened against the US dollar to 2,085.80 pesos.  The increase is largely attributed to increasing signs the global economy is improving and the desire of investors to earn higher profits.  The peso is one of the emerging market currencies attractive to risk-taking investors.

The Venezuela bolivar strengthened also to 6.55 bolivars per US dollar.  The bolivar operates in an unregulated market.  There are plans for zero-coupon dollar bonds to be registered internationally.  This will make it possible for investors to sell the bonds for dollars before their 2011 maturity date.

Other Latin American currencies showing activity include the Chile peso (fell to 536.75 pesos per US dollar); the Argentina peso (also falling to 3.7985 pesos per US dollar; and Peru’s sol (falling to 3.0175 sols per US dollar).