Financial Industry Losses Adding Currency Market Volatility

Posted September 02, 2009

Canada’s dollar declined against the US dollar as oil prices continue to drop. The global financial industry is expected to experience many more losses as defaults in the residential and commercial markets rise. The yen advanced against the US dollar and most other global currencies as investors returned to safe haven assets.


Canada’s dollar fell for the third day as oil prices also fell to a low of $68 per barrel.  Oil is Canada’s largest export and when the price of a barrel of oil falls it always puts downward pressure on the loonie.  The currency loss erased gains made over the last couple of weeks as markets begin to deal with the issue of possible increasing numbers of bank losses.

It was mentioned last week in an article that the number of faltering mortgages and loans on global bank balance sheets is a matter that had yet to be addressed.  Clearly the issue is bubbling to the top and there is a threat of increasing losses in both the commercial and residential credit markets.  It had been predicted that increased bank closures and rising foreclosures in the US, Canada and Europe would slow the possibility of a recovery from the recession. 

As September begins to unfold the equity markets will be going through an adjustment because the general agreement is that stock prices rose too fast given the condition of the financial industry and the slow rate of consumer spending.  This will negatively impact emerging market currencies and drive investors temporarily back to safe haven investing.

The Canadian dollar declined to C$1.1033 against the US dollar which equates to 90.63 US cents per one Canadian dollar.

As would be expected in such market conditions, the yen rose against most major global currencies including the US dollar.  The potential US banking losses are dragging the greenback down.  The yen advanced to 92.84 yen per US dollar and to 131.97 against the euro.  In fact the yen briefly reached 131.46 yen per euro yesterday which is the highest the yen has seen since 15-July-2009.

The Australian economy reported better numbers than expected for the second quarter of 2009 which led to the Aussie advancing against the US dollar to 83.06 US cents.  The Australian GDP expanded by .6 percent according to recent numbers with benchmark interest rates being held at 3 percent compared to Japan’s .1 percent and the US zero to .25 percent.

In the UK signs of economic struggling continue to appear among the glimmers of hope a recovery is about to begin.  The August manufacturing numbers fell in August much to the surprise of the government.  The UK pound fell to $1.6176 against the US dollar.  It remained about the same against the euro at 88.04 pence per euro.

By the way, UK consumers are paying off debt in record numbers.  The pound is not expected to continue weakening against the euro or US dollar and recent declines have been attributed more to what analysts call “knee jerk” reactions.

The Columbian peso fell to 2,073.15 pesos per US dollar as investors abandoned riskier assets for safe haven in the less risky investments.  This was the third day of declines for the peso.

The Argentina peso rose against the US dollar to 3.8504 peso per dollar as the country shows signs of increasing ability to expand economically.  The government is currently working on a swap agreements with the goal of lowering its debt burden.  Argentina is clearly working on a program intended to expand the nation’s exports as recovery from the recession begins.

The South African rand fell to 7.8671 rand per US dollar and to 11.1946 rands per euro.  The country’s purchasing managers’ index advanced once again in August making the third month of increases out of the last four months.