Yen Falls While Brazil Real and Other Currencies Rise

Posted May 27, 2009

The yen fell against all 16 major global currencies as investors seek higher yielding assets. The Brazil real strengthened to an 8 month high against the US dollar. The Russian ruble also rose as US consumer confidence and oil prices increased.

 

There was a lot of currency activity yesterday as investors began to respond to mixed signs around the world that the recession has hit bottom.  In some cases, such as in the US, there is a growing belief the economy is actually on the verge of beginning the long, slow climb upward.

US Treasury Secretary Timothy Geithner said in a speech, “The national economy is showing some initial signs of stability, confidence is improved, the financial system is starting to heal, credit is starting to ease a bit. It’s just the beginning, however.”   It is clear that it will take many months, if not years, to fully recover from the economic contraction that occurred over the last year.

The US dollar did not change much against the euro.  The euro strengthened to $1.3838 against the US dollar.  But the euro fell against the pound to 86.77 pence per euro.  The current key support level for the euro is considered to be 86.37 pence per euro.

The US dollar rose against the yen to 95.69 yen per dollars.  The yen weakened against the euro to 132.74 yen per euro.  In fact, the yen weakened against all 16 major global currencies.  As the recession appears to be bottoming out, investors are looking toward emerging market currencies for higher yields.

Brazil’s currency, the real, rose to 1.9972 real per US dollar by the end of the day after pushing to 2.0378 real per dollar earlier in the day.  This was a significant value since it represents the first time the real has traded beyond 2.0 real per dollar since last October.  There is speculation the central bank will cut the country’s benchmark interest rate again as inflation slows.  An additional rate cut would keep the economy stimulated.  The current interest rate is 10.25 percent which is the lowest the interest rate has ever been set.

The Australian dollar strengthened to 77.95 US cents as commodity prices continued to rise.  July delivery prices for crude oil rose to $63.05 per barrel.

The Canadian dollar, nicknamed the loonie, weakened to 89.17 US cents.  Canada is in political turmoil with the Canadian opposition party asking the finance minister to resign his position.  Canada’s projected deficit is expected to reach record highs.

The Russian ruble strengthened against the US dollar as the price of a barrel of oil rose to the over $63 rate.  The ruble rose to 31.1778 rubles per dollar.  The ruble also rose against the euro to 43.3663 rubles per euro.

Besides the price of oil rising, the Russian ruble was also responding to the increase in US consumer confidence.  The ruble is on the list of riskier currencies and investors are currently assuming more risk.

The ruble is measured against a currency basket composed of US dollars and euros.  The purpose is to have a way to limit currency swings in order to control exports.  The ruble rose to 36.6644 rubles against the currency basket which is a .7 percent increase.

The impact of a General Motors bankruptcy is built into the US dollar value up to a point.  The day the actual bankruptcy is officially announced there will probably be a strengthening of the US dollar as investors seek temporary safety again.  Clearly though, the dollar value and the stock market are not moving in opposition as they have been doing during the recession.

 

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