February 2013 Currency Exchange Rates

Click image for larger view

In February the U.S. dollar depreciated by 0.3 percent (monthly average basis) against the euro, but appreciated 1.3 percent relative to Canada’s loonie and 4.7 percent against the yen. On a trade-weighted index basis, the dollar strengthened by 0.7 percent against a basket of 26 currencies. 

Click image for larger view

Canada: The loonie has been dragged lower by several factors. For example, although real GDP edged up by 0.2 percent in 4Q2012, the economy contracted by 0.2 percent in December. Wholesale trade shrank by 0.9 percent in December (relative to November) while retail sales fell 2.1 percent -- marking the largest drop in nearly three years. Weaker oil futures prices put a dent in the value of the country’s biggest export at the same time Bank of Canada Governor Mark Carney indicated planned interest rate hikes have become less urgent.

Europe: Despite comments by Lars Seier Christensen, co-CEO of Danish bank Saxo Bank A/S, that "right now we're in one of those fake solutions where people think that [Europe’s] problem is contained or being addressed, which it isn't at all," the euro gained relative to the dollar on expectations of better economic conditions in Germany during the next several months. The ZEW Indicator of Economic Sentiment for Germany increased by 16.7 points in February (to 48.2 points) -- the third increase in a row. "The financial market experts have made their peace with the weak fourth quarter of 2012", said ZEW President Prof. Wolfgang Franz. “In their opinion the German economy faces [weaker] headwinds from the euro crisis than throughout the last months.”

Although Franz believes German business activity “may pick up speed moderately,” it may be hampered by factors elsewhere in Europe. London-based Markit Economics reported that Eurozone manufacturing shrank again in February, with all but Germany and Ireland experiencing a downturn. Moreover, the European Commission expects the Eurozone economy to contract for a second consecutive year in 2013. Finally, as if to prove Christensen’s point above, European banks are having difficulty repaying the money they borrowed from the European Central Bank; only about half the expected amount was repaid in the latest round.

Japan: The yen took another “header” against the dollar when news broke that Asian Development Bank President Haruhiko Kuroda had been nominated to head the Bank of Japan. Kuroda has called for pumping more money into the Japanese economy. Other factors contributed to the yen’s decline, including a third quarter of contraction during October-December (instead of the expected modest expansion) and a record trade deficit in January.

China: If official estimates are to be believed (cautions are given here and here), the yuan/renminbi overtook the Russian ruble in global trade transactions during January. The use of the yuan increased 24 percent in January from December and 171 percent from a year ago, while that of the ruble declined 5.4 percent on the month, according to the Belgium-based Society for Worldwide Interbank Financial Telecommunication. The Chinese currency accounted for an all-time high of 0.63 percent of the global payments, making it the 13th most-used currency, compared with 0.56 percent for the ruble, now the 15th most-used. The euro leads the list, followed by the U.S. dollar and British pound.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.