The Real Story

Posted January 04, 2009

The currency markets remain very quiet, but the real story for 2009 begins today now that the holidays are over. The yen is sliding against the dollar while stock markets climbed around the world.


Because Christmas and New Year’s Day fell on a Thursday, market trading has been slow for almost two weeks.  But maybe investors were also taking a much needed break from the 3 month market turmoil which was enough to make grown men and women cry.  The fact is that today, 5/January/2009, is almost like the real start of the New Year since it is the beginning of the first full week of trading.  You can almost envision someone saying, “On your mark…get set….Go!”

Friday, 2/January/2009, the big news was the roar of the stock markets heard around the world.  The Dow Jones Industrial Average rose 258.3 points to finally break over 9,000 again.  At the close of the business day last Friday, the DJIA was at 9,034.69.  But the FTSE and NIKKEI rose also.  The FTSE rose 127.62 points to close at 4,561.79 and the NIKKEI rose 183.56 points to 9,043.12.

But here is the catch.  Trading was very light on all the markets so analysts are unsure whether a few major trades caused the markets to rise.  So once again, the real story for 2009 will begin today. 

So how does currency trading look as 2009 starts?  The US dollar weakened against the British pound to $1.4471.  But the US dollar strengthened against the Japanese yen ($.0108).  The stock market increases seen last Friday, as discussed earlier, are one of the reasons the yen weakened.  Investors are considering moving back into higher yielding assets and that can drag a currency down.

The Japanese yen also weakened against the Australian dollar (y65.50) and the New Zealand dollar (y54.23).

The US dollar price is influenced right now by President-elect Barack Obama’s announcement he is working on a stimulus package that Congress can vote on before he even takes office.  The package includes a multi-billion dollar public works expenditure plan and tax cuts for both businesses and individuals.  It is uncertain whether such a package will be passed by Congress, but the currency markets are assuming there will be some kind of stimulus bill that will make it through the politicking.

The US dollar weakened against the Australian dollar ($.7136) and the New Zealand dollar ($.5889).  The rise in the Aussie and Kiwi is primarily due to rising commodity prices for exports.   Also, the price of a barrel of crude oil has risen to over $46. 

In China, the government is dealing with a recession that continues to deepen as manufacturing numbers showed a decline in December.  The yuan ($.1465) weakened against the US dollar.  China has a policy of manipulating the currency rate in order to protect its exports.

As the New Year gains steam, there are still a lot of unknowns.  The UK and US economies are facing continued housing price declines and increasing numbers of business insolvencies.  Yet in the US indicators show there is now ready cash available in funds and accounts for investing.  Also, the equity markets are expected to see further triple digit swings over the next few months, but there are also signs they are beginning to stabilize.  Of course, the renewal of the Middle East conflict is the first sign that 2009 will be far from peaceful any way you look at it.

So as the real 2009 investment year begins, it will be interesting to see how the real story unveils.