Unconvincing Strong US Dollar Talk

Posted October 10, 2009

The US dollar weakened against the euro as investors remain unconvinced that the US dollar will regain its strength. The Australian dollar strengthened as August employment rose. Mexico’s peso jumped on the news there might be congressional support for a budget balancing plan that includes tax increases.


The US officials have been busy promising a commitment to a strong dollar, but global investors remain unconvinced. The dollar weakened against the euro as they moved their money into higher yielding markets including the Australian market.

In fact, the Australian dollar performed well against the US dollar and reached 90.36 U cents.  The dollar weakened against the euro to $1.4732 on Friday.  The US government continues to proclaim its dedication to strengthening the dollar, but global investors are concerned the fundamentals are not in place to support this position.  For example, rising national US debt and money supply threaten US economic growth over the long term.

Some analysts see the world’s largest economy as waning and are looking to the Euro-Zone and the emerging markets like Brazil as the next areas of prosperity. Australia reported growing employment for August adding 40,600 people to payrolls.  This is the largest increase in jobs in 2 years.  Australia now has 5.7 percent unemployment compared to 9.8 percent in the US.

The euro rose against the yen also to 132.25 yen.

The UK pound did not fare as well and weakened against the US dollar to $1.5842. The UK economy continues to struggle. Last week the Bank of England chose to keep its interest rate at .5 percent.

Mexico has been trying to balance its budget for next year and there has been disagreement between political parties as to the methods to use.  But now Mexico’s President Felipe Calderon has enough congressional support to implement his recommended balancing plan that includes increases in taxes and spending reduction.

Mexico is faced with another Standard and Poor’s credit rating reduction if it is unable to balance its budget.  The peso has been weakening but gained 2.5 percent last week. The peso ended the week at 13.3070 pesos per US dollar.

Canada’s dollar strengthened against the US dollar as the nation’s economy rebounds. Employment is rising much faster than predicted.  This is particularly surprising considering a large portion of the Canadian economy is closely tied to the US economy.  In the US the unemployment rate continues to rise.

The Canadian dollar rose to C$1.0436 against the US dollar which means one Canadian dollar will buy 95.82 US cents. Canadian business confidence indices are rising.  There is a belief that tight credit conditions are improving.

Chile’s peso weakened on lower copper prices. Copper fell to $2.838 a pound for future December delivery.

The peso weakened to 554.50 peso per US dollar. Chile is the largest copper producer in the world. Some analysts predict copper prices will rebound next week.

In other parts of Latin America, currencies gained.  This includes the Peruvian sol which rose to 2.8596 sol per US dollar and the Argentinean peso which strengthened to 3.8288 pesos per dollar.

The Russian ruble fell against the US dollar to 29.6371 rubles per US dollar. This was largely due to falling oil prices.

China recently stated it is still trying to establish a solid economic recovery.  The country is under pressure from global leaders to increase domestic demand to reduce trade imbalances. The government has stated it plans on maintaining a loose monetary policy. A 4 trillion yuan stimulus program is in progress.

By the way, there is general agreement the equity markets are in an uptrend that is not justified by economic conditions.