Yen Falls as Investors Look for Higher Yielding Currencies

Posted May 06, 2009

The yen took center stage by weakening against the US dollar as investors experienced relief that US banks will not need as much capital as originally thought in order to make it through the recession. The Brazil real continued to advance as the economy shows signs of strength due to improving commodity prices. The Australian dollar strengthened against the US dollar as the country’s unemployment rate drops.


The yen proved its safe haven status by declining against the US dollar as investors digest the bits of good/bad news concerning the stress tests to be reported on Thursday, 7-May-2009.   The US stress tests are intended to determine if banks are going to need additional capital in order to absorb rising loan losses and the divestiture of toxic assets over time. 

Though toxic assets have not been in the headlines recently, they remain an ongoing problem.  But apparently, out of 19 banks subjected to the stress tests by the US Treasury Department, ten of them apparently will need additional capital.  But the good news for investors is that the ten banks will not need as much capital as originally anticipated.  In other words, they are in better shape than was believed.

Investors continued to look for higher investment yields and that led to the Japanese yen falling against the US dollar.  The yen fell to 98.68 yen per US dollar.  The yen also fell against the euro (131.31 yen); and the Australian dollar (74.47 yen).

The yen weakened against fifteen of the major global currencies.

The Australian dollar strengthened against the US dollar to 75.47 US cents.  Australia’s government reported the unemployment rate dropped in April for the first time in 8 months.  The same held true for New Zealand leading to the advance of the New Zealand dollar to 59.01 US cents.

The signs of life in the global economies are leading to increased investor risk taking.  But the report on the stress tests is not the only news coming out on Thursday.  The European Central Bank (ECB) is expected to lower the benchmark interest rate by 25 basis points to 1 percent.  The euro fell to $1.3310 against the US dollar.  The greatest concern of investors in the euro is the impact an ECB announcement of implementation of quantitative easing policies will have on the single-currency.

Other currencies being impacted by nervousness over ECB actions include the Polish zloty and the Hungarian forint.  The zloty fell to 3.3107 zlotys per US dollar.  The forint weakened to 214.06 forints against the US dollar.

Asian currencies are under pressure as a result of the International Monetary Fund reporting Asia will have to wait until 2010 for a sustained recovery.  The Taiwanese dollar fell to T$33.158 per US dollar.  The South Korean won also weakened against the US dollar to 1,272 won per dollar.

The Norwegian krone strengthened against the euro to 8.6942 krone per euro.  The central bank reduced its interest rate to 1.5 percent which is a fifty basis point reduction.  The krone also strengthened against the US dollar to 6.5220 krone per dollar.

Brazil has been reporting a widening trade surplus as China increases its import of Brazilian raw materials.  The real strengthened to 2.1086 real per US dollar.  Overall this year, the real has strengthened by 9.7 percent when paired with the US dollar. 

The Colombian peso also rose against the US dollar reaching 2,229.55 pesos per dollar.  The rise is attributed to increasing commodity prices including increases in the price for a barrel of oil.  Among Latin American currencies, the Columbian peso has strengthened the most over the last month.