Posted August 05, 2009
The US dollar fell against most major global currencies while the yen strengthened as Asian equity markets fell. Canada’s dollar weakened against the US dollar. Most Latin American currencies appreciated as economic recovery looks more promising.
The yen continued to strengthen against the US and the euro yesterday for the second straight day. The yen actually rose against most major global currencies due to anticipation the Japanese will slow their investments in higher yielding international assets.
The speculation is coming out of the fact the MSCI Asia Pacific Index and S&P 500 have fallen for the last 2 days. When the equity markets decline the Japanese yen tends to rise in an inverse correlation.
The yen strengthened to 94.96 yen per US dollar late yesterday New York time. The yen also strengthened against the euro to 136.82 yen per euro.
The US dollar rose slightly against the euro to $1.4407 by the end of the day.
The Canadian dollar had strengthened to a 10 month high causing government concern about the negative impact of the appreciation on economic recovery. The central bank has publicly expressed that concern and indicated it might intervene in the currency market to slow the rise. The threat of easing of the monetary policy was enough to cause the loonie to fall.
The Canadian dollar weakened to C$1.0726 against the US dollar which means one loonie buys 93.23 US cents. The Canadian dollar has risen 7.9 percent against the US dollar this year.
The Bank of Canada made a statement through Finance Minister Flaherty that said, “We are concerned about any rapid changes in the valuation of the Canadian currency vis-à-vis the U.S. currency.” Though there are no specific plans to begin a monetary policy of quantitative easing, the country is clearly ready to adopt such a policy if needed to spur economic recovery. The Canadian benchmark interest rate is .25 percent right now.
Latin American countries saw continued increases in currency values as investors move money into higher yielding assets. The emerging economies may recover from the recession at a much faster pace than developed nations attracting investors seeking profits.
The Columbian peso strengthened to 1,993.40 pesos per US dollar late yesterday New York Time. The Chile peso also rose to 538.75 peso per US dollar. The Argentina peso strengthened slightly to 3.8236 pesos against the US dollar. The Peru sol rose to 2.9565 sol per US dollar.
The Venezuelan bolivar, on the other hand, fell to 7.05 bolivar per US dollar. The bolivar is pegged to the US dollar by the government at an official exchange rate of 2.15 bolivar per dollar. This policy has been in place since 2003.
The Swiss franc weakened against the US dollar to 1.0620 francs per US dollar and against the euro to 1.5276 francs per euro.
The Brazil real is expected to continue to strengthen as the largest Latin American economy shows signs of rapid economic recovery. There is speculation it could appreciate to 1.7 real per US dollar.
Yesterday the real rose to 1.8163 real per US dollar late yesterday New York time. The real has strengthened by 27 percent this year and is the best performing currency against the US dollar among major global currencies.
The appreciation of the real has led to an over-appreciation in the opinions of some analysts. The country also has the same concerns as Canada in terms of the impact of the increase on exports. A stronger currency will narrow the trade surplus by causing declines in export orders.
Global economic recovery is picking up steam as housing sales and consumer spending in countries like the UK and the US show continued increases. As the recession hits bottom the next step will be deciding the best way to unwind the stimulus programs that have created mountains of government debt.