Emerging Market Currencies Grow Stronger

Posted November 09, 2009

The US dollar and Japanese yen fall as investors take on more risk. The UK pound rose against the US dollar as the UK economy continues to stabilize. The Canadian dollar rose again as oil prices climb once again to over $80 a barrel. The Brazil real also continued to strengthen as capital inflows into the country rise. The Chile peso and Mexican peso rose against the US dollar.


The US dollar weakened against the euro as Asian markets rallied. The dollar fell to $1.4989 against the euro. The yen also fell to 134.89 yen per euro as demand for safe haven assets fell. Investors took on more risk as they demanded higher yielding assets.

Part of the Asian picture is a strong Chinese economy. China is in recovery and it is one that appears to be stable and ready to expand. The data is solid and that news caused the biggest declines in the US dollar and yen. China’s industrial production rose by 15.5 percent this October compared to October of last year. Exports continued to rise also.

The Dollar Index fell to 75.044. This index measures the US dollar against six major currencies. The expectation is that countries with commodity based exports will see the biggest demand in their currencies. The US President Barack Obama and China’s President Hu Jintao are set to meet next week.  President Obama told Reuters that, “Currency, along with a host of other issues, will come up, and I’m confident that both the United States and China can arrive at a broad set of policies that encourages trade that benefits both countries.” 

The UK pound rose against the US dollar to $1.6782. Sterling strengthened as the UK economy stabilizes reaching US$1.6727. The pound is seen as undervalued while the US dollar is overvalued. The UK recently expanded its bond buying program as the Bank of England continues its program of quantitative easing. Monetary policy will remain loose until such time the stimulus programs can be withdrawn without jeopardizing economic recovery.                             

The Canadian dollar strengthened against the US dollar more than it has in 5 months. The rise was attributed to the impact of G-20 remarks concerning agreement on maintaining economic stimulus measures. The dollar rose as December future delivery prices of oil rose to $80.03 per barrel.

The Canadian dollar rose to 94.67 US cents or C$1.0563.

The Brazil real rose yet again as the G-20 remarks led to emerging market and commodity based currency increases. The G-20 was silent on the subject of the weakening US dollar. The real rose to 1.6989 reais per dollar. There has been a rising amount of capital investment flows into the country forcing the real to rise by 36 percent this year against the US dollar. The capital investment increases are partly due the historic low interest rates in the US.

Chile’s peso rose against the US dollar to 512.5 pesos per dollar. The peso has risen by 8.2 percent over the last month making it one of the best emerging market performers. The news the G-20 is supporting continued stimulus spending until the recovery solidifies has strengthened emerging market currencies.

The Argentine peso remained stable at 3.8152 pesos per dollar. The same was true for the Venezuela bolivar at 5.38 bolivars per dollar. The Peru sol rose slightly to 2.887 sols per dollar.

Mexico’s peso rose to 13.2778 peso per US dollar. The peso has been weakening as the government deals with dropping oil production and a 2010 budget deficit.  Mexico’s peso is also benefitting from the news the US stimulus spending will continue for a while.

Mexico has been threatened with a possible credit downgrading by Standard & Poor’s.  The decision will be made after the spending plan for the 2010 budget is settled.