Yen the Safest Haven of All

Posted August 25, 2009

The Japanese yen strengthened as safe haven investing returns to the currency market. Canada’s dollar weakened as oil prices fell. Mexico’s peso and most Latin American currencies fell also as commodity prices declined.


The Japanese yen strengthened again yesterday when paired with the euro as investors once again returned to safe haven investing.  The yen advanced as it became apparent more US banks are going to fail before recovery begins and recovery from the recession will take more time than expected.  It is expected up to another 200 US banks could fail.

Ten days ago a large US bank, Colonial BancGroup Inc., was taken over by BB&T Corp as federal regulators began a criminal investigation of Colonial.  This was the largest bank takeover this year and the second largest since the beginning of the recession.  The largest bank to fail since the start of the recession so far is Washington Mutual.

Investors had hoped the global recession would end fairly quickly once signs of recovery began but that is not going to happen.  Oil and commodity prices continue to fluctuate forcing fluctuations in commodity backed currencies such as the Australian dollar.

The Japanese yen advanced to 134.36 yen per euro and to 94.00 yen per dollar.  The US dollar rose to $1.4293 against the euro.  The yen fell against the UK pound to 153.39 yen.

Japan’s export numbers prove the recession recovery will not occur in a smooth upward trend.  For example, the Japanese export figures continued to decline in July even after a first quarter increase seemed to indicate an economic recovery was in the making.  The exports fell by 36.5 percent as of year-to-date July compared to the same time period a year earlier.

Canada’s dollar fell against the US dollar as commodity prices declined.  This was the first decline reported in the last six days.  The loonie decline was welcomed as Canada Deputy Governor Timothy Lane was quoted as saying in a speech Ontario, that a “persistently strong” currency would “reduce real growth” and delay inflation’s return to its target area.

The Canadian dollar fell to 92.02 US cents or C$1.0867.  The price of a barrel of oil for future October delivery declined to $71.36 per barrel.

Mexico’s peso fell to 12.9749 pesos per US dollar.  The peso also fell as oil prices fell by 4.4 percent.
Falling oil prices affected the Columbian peso too.  The peso fell to 2,018.90 pesos per US dollar. Oil is Columbia’s main commodity export.

Chili’s peso weakened as copper prices declined.   The peso fell to 547.25 pesos per US dollar after copper fell by 2.1 percent.  Another Latin American currency weakening is the Argentina peso which fell to 3.8550 pesos per US dollar.  Peru’s sol bucked the trend of falling currencies by strengthening to 2.9570 sol per US dollar.

The Venezuelan bolivar weakened to 6.61 bolivar per US dollar.  Ali Rodriguez, the Finance Minister, reported the government intends on reducing the gap between the official exchange rate set at 2.15 bolivars per US dollar and the parallel rate.  He indicated the reduction would be significant though he declined to provide specific numbers.

The rate gap could be narrowed by issuing more US dollar-denominated debt.  The government could also choose to revise the official exchange rate.  The parallel currency market is where investors buy when the government will not permit a purchase of the currency at a pegged exchange rate.

The Polish zloty strengthened to a seven-month high as the economy begins to make significant improvement.  Retail sales were reported to have risen by 5.7 percent in July compared to a year ago.

The zloty rose to 4.0666 zloty per US dollar.