Piggy Bank Getting the Slops

Tuesday, June 26, 2012 at 1:48pm by Sandy Jones

The economy is shaking currency rates around like loose coins in a jar. With all the noise and fears in conjunction with market fluctuations and international relationships, the currency values are all over the charts. But which moneys are forecasted to do well in the future and which ones appear to be headed downhill for good?

 

Brazil and China

Although minor tensions exist between the two, Brazil has partnered with their biggest trading partner (China) in an agreement to conduct a currency swap. The deal gives their central banks the ability to exchange local currencies worth up to 60 billion reais or 190 billion yuan (equivalent to $30 billion and £19 billion). These funds can be used by the banks to boost bilateral trade, or to build up their reserves for a possible time of crisis.

China has transacted similar deals with Austraila (valued up to $31 billion), Honk Kong, and Japan. Beijing desires an altercated version of the deal, pushing for a settlement in yuan instead of US Dollars in an effort to reduce their dependency on the US dollar. This would actually benefit China’s attempt to make the yuan a global currency. However, as the BBC news reports, China’s slowing economy may be seen as a warning sign by some. According to Brazil’s Finance Minister though, China will continue to be their primary source of trading.

 

India

Financial activity in India has changed as well. Recently, the government increased by $5 billion the amount of their bonds that foreign investors can buy. Following the dramatic decline of the rupee’s value against the dollar, India has sought to increase demand for their currency. Given the 21% drop the rupee took against the dollar, the mere 0.2% increase coinciding with the announcement of higher bond availability was disappointing at best.

In the article released by Bloomberg, noted economists were complaining that the measures taken by the government were temporary and short-term. Sonal Varma, (Nomura Holdings Inc. Economist in Mumbai) put it this way: “The underlying issues of more economic reforms and cutting subsidies are still not being addressed. What has the government done to reduce the fiscal deficit and curb the current-account deficit?”

 

Australia

One of the few remaining AAA rated countries, Australia is gaining more attention for its currency value. China is also the biggest trading partner with Australia, yet even though there were worries over the slowed growth of that country, Aussie’s dollar remained steadfast. This drew the spotlight to the land down under and global banks have shown an increase in Australian dollar purchases.

Most recently, Russia’s central bank looked into the possibility of investing in the Aussie currency. They will allocate about $5 billion (equivalent to 1% of their foreign currency reserves) to Australia’s dollar-assets, including government bonds. In addition to the Russian interest, Germany also investigated the Australian monetary assets and has increased their meetings with Australia’s banks in discussing foreign-exchange strategies.

Even though it appears safer than most other currencies, Australia comes in second compared to the Japanese yen and the Swiss franc according to CNBC.com. Although it remains only a small part of the overall global forex reserves, the Aussie is capable of drawing in substantial capital inflows from portfolio and direct investment flow. While their Gross Domestic Product (GDP) remains relatively low, the economic growth appears quite positive compared to other countries.

 

Canada

Unfortunately, Canada is not doing quite as well as Australia or China, as pointed out by Bloomberg. In fact, the Canadian dollar dropped a total of 1.12% this month, the steepest decline since December. The decline is due in part to the decrease in retail sales – down 0.5%. Jim Flaherty, Canadian Finance Minister, made known his intentions of tightening mortgage terms to help avoid household debt crisis along with the other measures.


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