Yen Falls Again As US Recovery Strengthens

Posted December 10, 2009

The yen weakened against most major global currencies as the US economy improves driving up risk taking. The New Zealand dollar advanced for a second day against the US dollar. Canada’s dollar strengthened after the country posted a trade surplus. The Mexican peso falls after a new finance minister is named.


The yen weakened against most major global currencies as the global recovery inched forward again. Americans are indicating they are beginning to have more confidence, and third quarter household wealth grew. This bodes well for future spending and thus another uptick in the economy.

As investors venture out into riskier investments, the yen fell against the euro to 130.08 yen. The yen also weakened against the US dollar to 88.34 yen.

The US trade deficit narrowed in October largely due to the weaker dollar increasing export levels. The deficit narrowed by 7.6 percent and is now at $32.9 billion. Exports increased by 2.6 percent.

The New Zealand dollar advanced to 72.65 US cents. The appreciation began yesterday after Alan Bollard, the Reserve Bank Governor, indicated the New Zealand benchmark interest rate would increase by the middle of next year. The kiwi also rose against the Japanese yen to 64.19 yen.

Also rising against the yen was the Australian dollar. The Aussie appreciated to 80.92 yen and to 91.49 US cents.  The Australian dollar is responding to signs that China’s imports are increasing significantly. China is Australia’s largest trading partner.

China’s economy is healing quickly. Factory output for November rose by 19.2 compared to a year earlier. The increased industrial output is due to a combination of stimulus spending, higher bank lending, and incentives for durable goods purchases. The government may decide to begin tightening monetary policy soon.

China has been criticized for refusing to allow the yuan to appreciate, but there are no signs the government intends on changing the policy.

The Canadian dollar rose against the US dollar to C$1.0516 where one Canadian dollar will buy 95.09 US cents. Canada posted a trade surplus taking many analysts by surprise. As a result there is speculation the central bank may raise interest rates sooner than planned to prevent accelerated inflation.  Currently the rate is at .25 percent.

Canada is recovering from the recession at a much faster rate than forecasted. Last month the country added 79,100 jobs.  Also exceeding forecasts were building permits which showed an 18 percent increase in October.

Brazil’s economic growth is proving to be slower than expected. That means the interest rate will most likely be left at 8.75 percent through the first quarter of 2010. The original number was 1.9 percent. The GDP for the second quarter of 2009 was revised downward to 1.1 percent. Third quarter growth was at 1.3 percent compared to the previous quarter.

The Mexican peso weakened again to 12.9415 pesos per US dollar. Recently Mexican President Felipe Calderon named a new Social Development Minister. Ernesto Cordero will serve as Mexico’s finance minister. This appointment has caused concern because it is believed he may have trouble convincing the Mexican Congress to pass difficult tax and spending cut laws.

It has been a difficult economic week with Spain’s credit downgrading coming so soon after Greece’s downgrade. So far, Spain has not asked the International Monetary Fund for assistance. Greece’s policy makers say they are going to work diligently to reduce the deficit and debt level.