Equity Markets Fall and Yen Rises Yet Again

Posted August 31, 2009

The Japanese yen rose against the US dollar and euro as investors adopted risk aversion strategies when Asian markets fell. The Australian dollar advanced against the US dollar. Canada’s loonie fell in response to falling oil prices.


The Japanese yen continued to climb against the US dollar as technical charts indicated the Asian stock market has rallied too high. Investors began to seek safe haven assets like the Japanese currency to protect portfolio values.  Risk aversion strategies almost always include buying the yen and US dollar.

Though there are now clear signs of global economic recovery, there is also much concern the pace of recovery will not be steady and will certainly be slower than hoped. The yen advanced to 93.14 against the US dollar and to 133.51 yen per euro.

The Australian dollar has begun to climb against the US dollar also and is now at 84.39 US cents.   Some of the Australian dollar and yen strength is coming from the news out of China that China’s manufacturing production has increased in August at the fastest rate the country has seen in 16 months.  There had been concern that China’s expansion rate would slow but that does not appear to be happening.

The Reserve Bank of Australia meets today and economists are indicating the bank might begin a policy of monetary policy.  If so this would signal a possible interest rate increase in the near future.

Canada’s loonie weakened to a two month low against the US dollar. This was due to the decline in equity markets and crude oil prices.  The Canadian dollar fell to C$1.0933 against the US dollar or 91.46 US cents.

Canada’s economy contracted at a faster rate in the second quarter than was originally predicted.  The GDP fell by 3.4 percent.

The Mexican peso fell to 13.3050 pesos per US dollar as oil and commodity prices fell.  Economists are predicting a continued decline which will erase gains made over the last couple of months.

The South African rand weakened against the US dollar meaning it has now fallen for two straight months.  The decline is primarily due to investors moving their money into lower yielding safer assets in response to falling stock markets.  There is a growing belief the 6 month equity market rally is not sustainable.

The rand fell to 7.8277 rand per US dollar.  The rand also fell against the euro to 11.1389 rand per euro. 

The Hungarian forint fell against the euro to 272.12 forint per euro.  Once again the currency weakening is attributed mostly to the fall in the stock markets.  Emerging market currencies are not favoured during periods of risk aversion.

The Hungarian central bank reduced the benchmark interest rate to 8 percent in the belief an economic recovery is in the making.

Poland’s zloty also weakened to 4.0959 zloty per euro after claiming the best currency performance among emerging markets.  The zloty has risen 1.2 percent in August against the euro.

The Columbian peso weakened to 2,055.7 pesos per US dollar as oil prices fell and Asian markets dropped.  The Shanghai Composite Index fell 6.7 percent upon reports China has cut its bank lending.  Chile’s peso also fell to 553.65 pesos per US dollar.

Also falling is the Argentina peso which weakened to 3.8544 pesos per US dollar and the Peruvian sol which fell to 2.953 sols per US dollar.