Global Currency Markets Quiet as Equity Markets Rise

Posted November 05, 2009

The US dollar remained stable as equity markets rose. The Australian dollar rose to 91.10 US cents. The Mexican peso fell as consumer confidence declines. The Brazilian real strengthened once more.


The US dollar held fairly steady against most major global currencies for a change as investors wait for more economic data. The dollar index also remained flat at 75.74.

The US dollar was at $1.4875 against the euro. The UK pound on the other hand weakened slightly to $1.6573. Yesterday the Bank of England expanded its bond buying program but not by as much as it could have. The program was expanded by 25 billion pounds.

The UK pound was at US$1.6586.  The US dollar strengthened only slightly against the Japanese yen to 90.78 yen.

The global economic recovery is in a bit of the doldrums and that is why the Bank of England and the European Central Bank did not raise interest rates at their recent meetings. The US Federal Reserve expects to maintain interest rates at the same level for many more months.

The Reserve Bank of Australia is another story. The Australian dollar was at 91.10 US cents. The central bank has already indicated that it would be gradually raising interest rates as 2010 economic predictions continue to be upgraded. The market did not respond much to the bank’s remarks but this is the first developed nation to have already raised interest rates.

The Australian central bank meets again in December but there might be clues as to the action it expects to take on interest rates in its monetary policy statement that will be issued today. Predictors believe there is an even chance the rate will be hiked to 3.75 percent in December. By next June it could be at 4.5 percent.

Australia’s economy is benefitting from heavy investments made in the country’s coal, natural gas, and iron ore industries. There is a strong demand for Australian natural resources coming out of Asia. The GDP is expected to grow by 1.75 percent in 2009.

Mexico’s peso fell to 13.2861pesos per US dollar. Economists are predicting a decline in consumer confidence in October. Mexico’s unemployment reached 6.41 percent in September and is still rising. The September figures are the highest they have been in 14 years.

The Brazil currency is at 1.7170 reais per US dollar. Brazil’s currency has been strengthening forcing Brazil to develop measures to slow its appreciation. Currently there are plans to build up its foreign reserves while also buying US dollars. The goal is to strengthen the economy.

The Brazilian stock market has been surging as dollar inflows increased. An attempt was made to stem to inflows of dollars by adding a 2 percent tax on foreign investments but it has had little impact. The extent of the currency’s appreciation is negatively impacting Brazil’s export profits.

Brazil is seen as one of the emerging markets expected to do well as global economic recovery heats up.

The G-20 meets this weekend and has a full agenda. The Group of 20 is expected to continue discussions on correcting trade imbalances. The International Monetary Fund is meeting with the G-20 to work on steps that need to be taken to achieve this goal.

The currency markets were quiet yesterday though equity markets rose. The Dow Jones Industrial Average rose by 203.82 points to close at 10,005.96. The NIKKEI was up by 70.84 point to close at 9,788.28. The BOVESPA rose by 903.15 points to 64,815.72. The FTSE 100 was also up by 17.75 points to 5,125.69.

Gold prices continued to rise with a troy ounce now at $1,091.50.