Mixed Currency News in Volatile Market

Posted October 20, 2009

The US dollar strengthened against the euro and the yen after weakening over the last week. The Bank of Canada decided to keep interest rates the same. The Australian dollar weakened while the Brazil real continued its steady climb.


Investors decided to return temporarily to safe haven assets which means the US dollar took a breather from its downward trend.  The dollar rose to $1.4921 when paired with the euro.  It also rose against the yen to 90.91 yen.

The euro remained about the same against the Japanese yen. The euro’s recent rise has raised concerns the stronger currency will slow the pace of economic recovery.

The equity markets showed signs of struggling to hold onto recent gains which led to renewed interest in the US dollar.  This dollar support will not last though and it is expected investors will soon return to higher yielding assets. The dollar index rose to 75.55. The US dollar seems to be on the path of becoming the carry trade currency as higher yields are found globally.

The US economic news remains volatile. Though housing starts rose in September by .5 percent on an annualized basis, the number of starts fell short of forecasts.  In addition, producer prices fell again.

The Bank of Canada voted to keep interest rates at their historic lows. The interest rates will be held steady into 2010. The Canadian dollar weakened as a result of the interest rate discussion. But there has been concern the strong Canadian dollar is hurting recovery.

The Canadian dollar is approaching parity with the US dollar and that is an unwelcome event in Canada. The loonie has risen 19 percent against the US dollar this year. One Canadian dollar will buy 95.34 US cents. The Bank of Canada said, “Heightened volatility and persistent strength in the Canadian dollar are working to slow growth and subdue inflation pressures. The current strength in the dollar is expected, over time, to more than fully offset the favorable developments since July.”

The Australian dollar weakened after a steady increase over the last week.  One Australian dollar purchases 92.27 US cents. The New Zealand dollar was at 74.88 US cents. The New Zealand Governor indicated the stronger New Zealand dollar does not prohibit interest rate increases though the first increase is not expected until the second half of 2010.

The UK pound also held steady against the dollar and was at $1.6370.

The rise in the Brazil real has been astonishing this year.  The real has strengthened by 31 percent when paired with the US dollar. The currency’s strength led the Brazil government to impose a 2 percent investment tax on foreign investments in Brazilian stocks and fixed income securities.  It is generally believed the tax will not end the real’s rise which is now at 1.71253 reais per US dollar.

The real has been growing stronger for many reasons and rising commodity prices is one of them.  Brazil also has an expanding economy and the country’s credit rating was upgraded by Moody’s.  Brazil is the largest Latin American economy.

The Columbian peso weakened to 1,919.72 when paired with the US dollar.  In the wake of Brazil’s foreign investment tax, it is speculated the Columbian central bank will follow suit with a currency weakening plan.  The Columbian peso has risen by 24 percent against the US dollar in the last 6 months. The peso appreciation has damaged the country’s export market.

The Argentina peso held fairly steady against the US dollar at 3.8204 pesos per dollar. The Chile peso rose to 543.53 pesos per US dollar. The Peru sol weakened against the US dollar to 2.8575 sols.