Posted November 19, 2009
The U.S dollar and Japanese yen rose as stock markets show instability. The Australian dollar strengthened against the US dollar with investors showing little appetite for carry trades. The Swiss franc fell against the U.S. dollar and the euro.
The US dollar and the Japanese yen generally gained against most major global currencies. With stock markets unstable this week there has been more interest once again in safe haven assets. There is also speculation that investors are repatriating funds before the end of the calendar year.
The U.S. economy is clearly struggling and President Barack Obama has mentioned the possibility of a double dip recession unless economic gains are made. The 10.2 percent unemployment rate is dragging the economy down as consumers have fewer funds to borrow with and to spend. U.S. Treasury Secretary Timothy Geithner yesterday asked the banks to lend more but people without jobs will obviously not be borrowing. In addition, credit has been tightened even for people with near perfect credit.
It is predicted the U.S. unemployment rate could rise as high as 12 percent.
The US dollar strengthened to $1.4887 against the euro which makes for a .1 percent weekly gain. The Japanese yen rose 88.88 yen per US dollar. This represents a .9 percent gain this week.
The Australian dollar has been trending downward as the government continues to manage the economic recovery. The Aussie weakened to 91.59 US cents which is a significant 1.8 percent decline this week. Current Australian interest rates are 3.5 percent normally making investments in Australia appealing. But as the stock markets show instability this week, there is no enthusiasm for expanding carry trades.
The New Zealand dollar also weakened to 72.67 U.S. cents which is a 2.3 percent drop for the week.
The Swiss franc weakened against the euro (1.5131 francs) and the U.S. dollar (1.0182 francs). The decline is due to the fact the Chairman-designate of the Swiss National Bank, Philipp Hildebrand, indicated the Swiss banking system needs more financial regulation because of the size of the banks.
Canada’s dollar weakened against the U.S. dollar for the 3rd consecutive day. The stronger dollar has led to falling crude oil prices and oil is one of Canada’s largest exports. Oil was at $77.06 a barrel for future December deliveries. The loonie weakened to C$1.0639 against the U.S. or one Canadian dollar buys 93.99 U.S. cents. As the first signs of inflation appear investors are now speculating as to when the benchmark interest rates might be raised.
Presidents Obama and Jintao concluded their meeting with no agreement on the status of the yuan. The U.S. hoped it could convince China to let the yuan appreciate in the open market but China did not agree to any trade or currency policy changes.
Emerging market currencies are being closely watched as they rally around the world. Efforts are being made to stem the rallies but they are having little impact. As has been mentioned several times, Brazil tried a tax on foreign investments to slow the influx of foreign investments. The real continued to rise.
Other emerging market countries are trying to find ways to stem currency rallies also. For example, Indonesia and South Korea are suggesting bank asset holding policy changes. The historic low interest rates in developed market countries compared to the higher rates in emerging markets are causing investment shifts. In carry trades, investors use U.S. dollars or the Japanese yen to buy higher yielding assets in emerging markets.