US Dollar Weakens As Global Economic News Improves

Posted July 27, 2009

The US dollar fell against most global currencies as global economic news shows continued improvement. Commodity prices are rising leading to strengthening of the Canadian and Brazil currencies. China tells the US it is still concerned about the value of its US investments.


The yen strengthened against the dollar and the euro on speculation that Japanese companies are repatriating earnings.  The yen has declined 1.4 percent against the two currencies making repatriation appealing.

The yen rose to 135.12 yen per euro.  It also advanced against the US dollar to 94.99 yen per dollar.

The US dollar fell against the Canadian dollar as global oil prices continued to climb and the US housing market shows signs of life.  Canada’s economy is closely tied to the US economy.  The dollar was at C$1.0826 at closing of the New York markets.  Canada’s dollar has risen 7.6 percent against the US dollar this month. 

The US government reports indicated housing starts rose by 11 percent in June which is a clear sign the recession is easing.  As the recession eases, investors will be more likely to move funds into higher yielding assets.  For example, the Brazil benchmark interest rate remains at 8.75 percent even after several reductions.

Even Sweden has a .25 percent interest rate whereas the US rate is at zero.

As mentioned, China and US officials are meeting the first 2 days of this week to cover a broad range of topics.  Unfortunately for the US the Chinese Assistant Finance Minister, Zhu Guangyao, pushed China’s focus about the weakening US dollar to the top of the agenda.  He said that China is still concerned about its investments in US assets.

US President Barack Obama called for closer China-US ties.  China is the largest holder of US debt.  China also has a $2.3 trillion currency account surplus and is looking for ways to invest the money.

Brazil is expected to post a current account surplus for June of $500 million.  This is a stunning turnaround for an account that had a $1.74 billion gap in the month of May. The real rose to 1.8920 real per US dollar making a 22 percent gain this year.

A major cause of the real’s performance is the rise in commodity prices.  Both copper and aluminum prices have risen as have oil prices.  Brazil’s economy is heavily dependent on commodity exports.  The country is part of the economic BRIC which is a growing financial shaker and mover in the financial markets.

The Chile peso weakened to a 2-week low when it reached 542.55 pesos per US dollar.  The Chile government reported that interest rates will remain low for an indefinite period of time.  Investors had expected some indication as to when the central bank would be raising rates.

Also weakening was the Columbian peso which fell to 1,994.52 pesos per US dollar. 

The Australian dollar rose against the US dollar to 82.50 US cents.  It also advanced against the Japanese yen to 78.46 yen per Aussie.  The strengthening is a response to the Reserve Bank of Australia Governor Glenn Stevens stating that the Australia economy is improving with the upside risks now balancing the downside risks.  This means a potentially rapid economic recovery is possible.

German Economy Minister Karl-Theo zu Guttenberg indicated that Germany’s economy is showing some indications the worst of the recession may be over.  There are improving economic indicators and the consumer sentiment rose.  But the Economy Minister also said the recovery would be slow and could extend into 2011.

That is a common message from developed nation leaders.  The recession is easing but recovery will be slow because the financial system is still experiencing instability and unemployment continues to rise around the world.  Just yesterday the giant cell phone company Verizon announced 8,000 layoffs.