Posted August 14, 2009
Signs the global recession is about to end in many areas is leading to currency advances against the US dollar. The Canadian dollar, Japanese yen and Brazil real strengthened. Germany and France reported surprising economic expansion numbers for the second quarter of 2009.
The yen strengthened against both the US dollar (95.237 yen) and the euro (136.10) yesterday. It is believed that Japanese businesses are going to be repatriating funds currently invested overseas. This belief has grown out of the US preparing to make US debt payments and redemptions for almost $80 billion.
In the Eurozone the economic news soon to be released will show consumer prices fell by .6 percent in July. Yesterday’s economic reports already revealed the Eurozone’s gross domestic product contracted by .1 percent in the second quarter of 2009. This will mean interest rates will be kept low leading to a weakening euro. This is the second straight day the euro has fallen against the euro.
The euro remained about the same against the US dollar at $1.4290.
It should be noted though that predictions about the Eurozone economy had indicated the contraction would be .5 percent rather than the .1 percent reported. This is yet another indication the recession is ending.
Tsutomu Soma, a bond and currency dealer working for Okasan Securities Co. in Tokyo summed up investor feelings about the Eurozone numbers when he told Bloomberg, “The European report may suggest deflation is becoming entrenched in the euro area, which would be very bad for the economy. A weaker euro would be better in a deflationary situation and any interest-rate hikes would be off the table.”
Canada’s dollar strengthened for the second straight day as equity markets and the price for a barrel of oil for future delivery rose. The increase in global commodity prices drives the loonie up. The Canadian dollar rose to C$1.0884 against the US dollar which means one Canadian dollar will purchase 91.88 US cents.
Crude oil prices for September delivery are now fluctuating between $71-$72 a barrel and reached as high as US$72.21 per barrel at one point yesterday on the New York Mercantile market. Crude oil is Canada’s largest export.
The Brazil real strengthened once again against the US dollar as the country’s retail sales for June rose more than predicted by economists. Retail sales increased by 1.7 percent compared to the prior month.
The real strengthened to 1.8236 real per US dollar. It is one of the best performing currencies paired with the dollar. Investors are expected to continue to invest in the emerging market assets due to higher yields. Currently the benchmark interest rate is 8.75 percent compared to zero to .25 percent in the US. The central bank of Brazil intends on purchasing US dollars in the currency market to slow the rate of real appreciation.
The UK pound strengthened against the US dollar to $1.6575 and remained close to the same against the euro at 86.19 pence per euro. The pound benefited from German and French reports that indicated the second quarter GDP numbers show expansion rather than contraction.
The Polish zloty also strengthened against the euro to 4.1078 zloty due to the news the German economy is growing signaling the recession is close to ending. Germany is Poland’s largest export market.
Poland’s economy is already expanding and is the strongest Eastern European emerging market. German economic growth will only lead to greater market growth in Poland.