Yen Strengthens While Waiting for US Earnings Reports

Posted July 09, 2009

The Group of Eight postpones the discussion concerning a new world trade currency. Crude oil prices are dropping again leading to a 7-week fall in the Canadian dollar. The yen strengthened against major global currencies as investors wait for US earnings reports to provide signals about the state of the global economy.


The Group of Eight leaders are meeting in Italy right now and there was a lot of speculation they would discuss the issue of the US dollar remaining as the world’s trade currency.  But instead they tabled that discussion and decided to make climate change one of the main agenda items.  The fact that China’s President Hu could not attend may have had a lot to do with the tabling of the currency discussion.  China is the leader of the push for a new world reserve currency.

The G-8 also discussed the best way to exit the stimulus measures that have been put into place to combat the recession.  There was general agreement there would not be any steps taken until the recession truly reached the point of making a recovery.  At that point there would be a country-by-country unwinding “depending on domestic economic conditions and public finances.”

The recovery is expected to be quite slow and the global contraction for 2009 is now projected at 1.4 percent by the International Monetary Fund.  Once recovery begins though, it is believed that the 2010 expansion will be at 2.5 percent.  US President Barack Obama said publicly the global economy is still unstable.  In fact he is considering implementing a second stimulus program which would inject billions more into the US economy.

Oil prices are dropping again which is putting downward pressure on Canada’s dollar.  The Canadian dollar hit a 7-week low after oil prices dropped for the sixth day in a row. Crude oil prices dropped to US$60.01 a barrel with oil being Canada’s largest export.

The loonie reached C$1.1725 against the US dollar which it has not seen since May 18 of this year.  The Canadian dollar ended the in New York at 85.65 US cents.  Like the US, Canada’s joblessness claims are continuing to rise with the country currently predicted to reach 8.7 percent in June.

On the other hand, the yen strengthened to 91.81 yen against the US dollar at one point yesterday.  This is the strongest level it has seen since 17-February-2009.  The drop was attributed to investor speculation that major US earnings reports would show declines. Investors then went long on the yen hoping to reduce risk.

The yen also strengthened against the euro to 128.67 yen per euro.  The yen appreciates when there is global financial uncertainty because Japan does not need to depend on overseas lenders thanks to a trade surplus.  The yen rose to 70.96 yen against the Australian dollar.

The Australian dollar has gained 11 percent this year against the US dollar making it one of the best currency performers.  Yesterday’s decline might signal a market correction is taking place.

The UK pound fell against the US dollar to $1.5985 as investors wait to see if the central bank will expand debt purchase program.

The International Monetary Fund reported Mexico’s economy will contract more than originally predicted in 2009.  This caused the peso to weaken to a one-month low.  The peso fell to 13.7588 pesos per US dollar.

Mexico’s economy is predicted to contract over 6 percent in 2009 with recovery from the recession being slow.  Of course this is the same prediction being made globally.  Banco de Mexico held two currency auctions yesterday and sold $300 million for the purchase of pesos.

An analyst, speaking about the volatility in the equity and currency markets, said investor sentiment is experiencing wild swings.  The predictions about the recovery change every day which is making it impossible to know with any certainty how a particular country stands economically.