Posts Tagged ‘country’

Japan, Mexico, Australia and New Zealand’s Currency Falls

Friday, March 6th, 2009

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Japan’s yen will fall to 102 to the U.S.’s dollar as of tomorrow. The yen had been as strong as 87.12 to the dollar in January and has lost 8.8% since then. The forecast calls for the yen to fall 4% more in the next 3 months. Mexico’s peso has dropped 32% since September. The peso is 16th out of the top 16 most-traded currencies, showing the largest drop and the worst performance also since September. For the fourth week in a row, Australia and New Zealand’s dollars fell against the U.S. dollar. The dollars also fell against the yen. Australia’s economy shrank in the fourth quarter and grew less than expected in January. What is going on here?

Though misery loves company, I don’t think we (by “we” I mean the United States) would wish our economical woes on any other country. So is our economy falling because of the currency issues in foreign countries or are they failing because of our falling dollar and failing stocks?

Because the yen and other Japanese accounts are declining, their investors started and continue to purchase foreign securities. In February, the yen had its worst monthly drop in 13 years, and Japan’s overseas stocks and bonds rose to record numbers. At the same time, Japan’s Prime Minister Taro Aso’s disapproval rating also rose to record highs. Carry trades could have helped Japan borrow foreign currencies with low interest rates and invest in nations with high borrowing costs. Don’t think that the U.S. is safe because our big investors could start purchasing foreign securities also, starting this whole downward spiral.

Mexico’s peso fell 1.4% to the U.S. dollar after an announcement of the country’s currency commission regarding changes to the foreign-exchange auction system. Yesterday the peso was down another 1% to 15.39 to the U.S. dollar. The same currency commission said it will offer to buy $100 million worth of pesos a day in order to guarantee that the central bank’s projected foreign reserve accumulation is sold. Even high ranking Mexican officials say that this will not be enough to jump start Mexico’s economy and failing peso. Mexico is in a state just below panic at this time and if things continue falling, the U.S. is going to have to step in before this goes too far. Just like any other nation, the United States could end up like this at any moment.

Australia has an overall negative dynamic which will be the main issue pushing their dollar lower. The Aussie dollar fell from a value of 64.3 U.S. cents two days ago, to 63.9 U.S. cents yesterday. Even New Zealand is feeling the pain, their dollar falling from 50.2 U.S. cents to 49.8 cents yesterday.

The thing to remember is for one, we are not the only ones feeling this bite of economical downfall. Different countries are hurting to different extents and in slightly different ways, but we can all empathize because if we’re not there, we have been or know we will be. Besides focusing on rebuilding the United States’ economy, we have to remember that the world will follow. This is not the first time we have seen crises and it won’t be the last. Your best weapon in this battle is staying informed and using that knowledge to the fullest.

The Value of a Dollar-It’s more than just 100 Cents

Wednesday, March 4th, 2009

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The value of our dollar depends strongly on the values of the dollars of other countries, exchange rates and interest rates. The interest rate in the United States from the Federal Reserve dropped to 4.75% in September 2007. Other banks around the world did not follow when this happened. This means that the European Central Bank (the home of the euro) has a higher interest rate right now than the Federal Reserve. Basically holding a Euro in your hand would be worth more in interest than holding a dollar in your hand. At this time in the dollar’s life, which would you choose?

Because of this difference in interest rate, other countries around the world are thinking like you and I are. They’re diversifying their holdings from dollars to Eruos and even British pounds for this same reason. In a supply and demand aspect, this situation causes there to be a large supply of dollars making them worth less. This loss in value caused the oil industry to charge higher prices, hence the skyrocket this past summer. Other countries don’t want the dollars they get for oil so they exchange them for Euros. It’s an endless cycle that has only gotten worse, despite understanding the root of the problem.

The dollar dropping is a double edged sword. On one hand, many manufacturers want to produce their products in factories in the United States, bringing us jobs. The reason manufacturers want to bring their factories here because it’s so cheap to run because of the low dollar value yet they can sell them overseas for the value of the Euro. On the other hand, the low dollar causes inflation. We know how bad that can be. Everything becomes more expensive in order to make up for the dollar value going down. Companies still want to make a profit on their goods so the cost of everything rises.

In order to get bonds to sell, they will be cheaper and have higher interest rates. These interest rates correlate to mortgage rates which don’t seem to be dropping anytime soon. Our weak dollar is also scaring away foreign investors who are now afraid to own stock in US companies. Foreign nations who have a lot invested in the dollar have the ability to cause a nuclear financial meltdown for the United States. They could easily exchange their dollars for something else, releasing our money into circulation, causing the value to plummet.

All in all, yes the dollar is worth 20 times less than it was in 1913 but a year or two ago, we knew that and we were used to it. Right now, on top of the 20 times less, it is losing more value in front of our eyes. I’m no one to give financial information but now that you know about the value of the U.S. dollar, just watch what you do with it. Buy and sell carefully because this is a delicate time for our economy.