Emerging Market Currencies Showing Strength

Posted September 30, 2009

The US dollar weakened as emerging market currencies strengthened significantly. The Swiss bank has apparently intervened in the currency market in order to slow down franc appreciation. The Mexican peso, Brazilian real and Canadian dollar rose as commodity prices increased.


Read the financial news and it is easy to see economic recovery is underway though slowly.  Many of the economic predictions are coming true too.  The US dollar is weakening. Signs of inflation are appearing. The first of benchmark interest rate increases are on the horizon. Some intervention in currency markets is occurring. The US dollar continues to be under attack as the primary trade reserve currency.

There is also the problem of how to withdraw the government stimulus funding without harming the recovery progress made to date yet to be fully addressed. 

The US dollar fell against the euro on the last day of September as the economic recovery picks up speed around the world.  Though the US is not recovering as fast as desired, there are other countries rapidly restoring normalcy to their economic programs.  For example, China is growing steadily and the manufacturing numbers show an increase for the 4th straight month. Because China has been focusing on establishing new trade agreements with emerging markets, this growth also brings quicker recovery to other nations like Brazil and India.

In Japan the Tankan survey reported an increase in manufacturing confidence.

The US dollar weakened to $1.4654 against the euro. The Dollar Index fell to 76.654. The dollar fell against the yen also to 89.91 yen per dollar.

In an interesting turn of events, the percent of the global currency reserve accounts accounted for by the US dollar fell to 62.8 percent in the second quarter of 2009.  The euro, on the other hand, accounted for a higher percent at 27.5 percent.

Mexico has been quiet lately, but the peso is on the rise.  The peso strengthened to 13.5115 pesos per US dollar.  The rise is primarily due to the increases in oil prices to $70.61 per barrel for future November delivery. In addition, the improving US economy bodes well for Mexico because the US buys 80 percent of its exports.

Mexico is still trying to balance its 2010 budget with no success yet. There is a projected 60 billion deficit currently projected. The government is working diligently to come up with an acceptable plan to plug the hole in order to prevent another credit-rating downgrade by Standard & Poor’s.

The Brazil real strengthened as investors seek emerging market assets and higher profits.  The real strengthened to its strongest level this year as commodity prices continue to rise. The real strengthened to 1.7670 real per US dollar.

Canada’s dollar strengthened also as oil and other commodity prices rose.  The loonie rose to C$1.0672 against the US dollar. One Canadian dollar could purchase 93.50 US cents.  It is expected the nation’s interest rates will be held at the current .25 percent until the middle of next year.

And yet another currency strengthening on rising oil prices is the Columbian peso.  The peso strengthened to 1919.72 pesos per US dollar making it one of the best emerging market performers. Columbia is a forerunner of increasing interest in Latin American countries that are expected to take on a stronger economic role in the post recession economy.

The Swiss franc fell against the euro to 1.5180 francs per euro. The Swiss central bank interceded in the market and sold francs in order to slow the currency’s appreciation.  The analyst March Chandler of Brown Brothers Harriman & Co. Wrote, “Price action and market talk suggests the SNB has intervened today to sell the Swiss franc. It appears it may be buying dollars and euros. Swiss banks have been rumored to be the featured agents, which fits into the intervention story.”