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.