Posted November 30, 2009
The Dubai loan crisis appears to have been relieved by an UAE promise to back the city-state. As investor confidence in the market returned, the US dollar weakened against most global currencies. The Canadian dollar strengthened as commodity markets improved. The Japanese yen continue to weaken against the US dollar raising further speculation Japan may intervene in the market. The UK pound weakened as consumer confidence fell.
The U.S. dollar weakened against the Australian and New Zealand dollars as the U.S. economy shows continued signs of recovery. The greenback also fell against the euro. The dollar was at 91.36 U.S. cents per Australian dollar; 71.50 U.S. center per New Zealand dollar; and $1.5021 against the euro.
The Institute for Supply Management-Chicago, Inc. reported a second monthly increase in its business index. It now stands at 56.1. Anything over 50 is considered to be an expansion.
The inability of Dubai to make a large loan payment shook the global markets over the weekend. It now appears the United Arab Emirates will stand behind Dubai and that has restored some market confidence. The U.A.E. will give Dubai access to a special facility that is tied to a current account. Dubai owns Dubai World and it plays a major role in the massive loan payment due. Dubai had asked for a standstill agreement with creditors and a revised payment due date of May 2010 for $59 billion.
The Canadian dollar rose against most global currencies except for Australia and New Zealand. All three countries have economies heavily dependent on commodity prices. The loonie rose to C$1.0599 against the U.S. dollar. This equates to one Canadian dollar being able to purchase 94.35 U.S. cents.
Canada’s economy is on the mend with an expansion of .4 percent reported for the third quarter 2009 GDP. This is compared to a 3.1 percent drop for the second quarter showing significant improvement.
The yen fell against the U.S. dollar to 86.66 yen per dollar. The slide down is expected to continue to 83 yen per dollar which will prompt government currency market intervention. The Japanese government has not sold yen in the currency market since 16-march-2004. The yen also fell against the euro to 130.16 yen per euro.
The Swiss franc rose against the euro to 1.5052 francs per euro and to .9994 francs per U.S. dollar. Investors believe the Swiss economy is improving at a faster rate than other developed economies. The franc had reached parity with the U.S. dollar last week.
The UK pound weakened against the euro on the surprising news that consumer confidence in the UK has weakened. Though housing mortgage approvals are rising, the UK economy still has serious challenges to meet. The Governor of the Bank of England, Mervyn King, has said that more asset purchases might be needed to keep the recovery on track. The pound fell to 91.14 pounds per euro making a 2 percent decline for the month.
The news from Dubai concerning its loan repayment problems was not good news for the UK. Dubai owns a lot of UK real estate and Dubai’s cash flow shortage could impact the UK recovery.
The Brazil real rose against the U.S. dollar to 1.7477 reais per greenback. Brazil is planning on implementing new measures to slow down foreign investment. To date, Brazil has created a 2 percent tax on foreign investments but that did little to slow down inflows. The government wants to slow the real’s appreciation to protect export profits. The clear signal from the government that it will slow the real’s rise has turned investors away due to uncertainty as to actions that will be taken.