By Roman Mamonov
This week, the US dollar obviously strengthened its positions against many other currencies.
The euro is now on the lowest position in the last 2 years – mainly, because of financial problems in Spain. The Australian dollar has decreased back to its lowest level in the last 8 months. The Russian ruble is experiencing a serious lowdown. The rates of the Brazilian real and the Indian rupee are also decreasing. All this looks even less optimistic against the background of a decrease of prices for oil and gold. In such a situation, businesspeople prefer to invest in what they believe to be the most stable currency now – the dollar.
The last week – and, in fact, the whole of May – currency markets were in a real fever. Nearly every day brought new negative records. Finance analysts, with an enthusiasm of spectators of a tragic but captivating show, were making their gloomy forecasts about what currency will decrease next and by how many points. In many countries, people really rushed to buy up currency.
However, it was in the countries of Eastern Europe where the local currencies “suffered” most of all. For example, the rates of the Hungarian forint and the Polish zloty lowed by 12%, the rate of the Czech koruna – by 10%, and of the Russian ruble – by 14%.
“The decrease of currencies was caused, first of all, by a sharpening of the financial crisis in the eurozone,” Russian finance analyst Andrey Lusnikov believes.
“It is becoming more and more evident that the eurozone has to hold more reforms in addition to the ones is has already held,” Mr. Lusnikov says. “In fact, the attempts, which the countries of the eurozone have already undertaken to overcome the crisis, were, as a rule, post factum reactions on the critical events which had already happened. Now, they have to try to take some preventive measures.”
“Because the measures taken by the eurozone’s countries’ authorities were lagging behind the course of events, they gained little to stop the crisis. The crisis is continuing to aggravate. Investors are trying to escape from possible risks, and this causes a pressure on the ruble.”
“However, it should be stressed that it is not only the ruble which is experiencing a decrease of its rate now. Other currencies, especially those of Eastern Europe’s countries, are experiencing a decrease as well. In fact, there are no stable currencies at present in the whole world – beside, probably, the Japanese yen.”
As it has already been mentioned, the main reason of the decrease of the currencies’ rate is the financial crisis in the eurozone. However, some negative events in the US and the Chinese economies have influenced this process as well. As a result, the euro fell down to the lowest level in the last 2 years, and the Australian dollar – in the last 8 months.
The worry about the slowdown of the world’s economy inevitably results in a decrease of oil prices. If we look at a diagram of the development (in fact, decrease) of the oil prices in this May, we’ll see that it is practically similar to the diagram of the decrease of the rates of the currencies of oil-producing countries. For example, prices for oil of the Brent brand decreased in May from $ 119 to $ 98 for a barrel, which makes nearly 20%. The prices for oil of the WTI brand lowered from $ 105 to $ 84 for a barrel.
Another Russian finance analyst, Vladimir Bragin, says:
“The decrease of oil prices, first of all, provoked a decrease of currencies of oil-producing countries – the Canadian and the Australian dollars and the Russian ruble. It is not only an already happened decrease of oil prices that may case a decrease of the rate of the currency of an oil-producing country, but even a mere expectationof the oil prices’ decrease as well. This gives much space to all kinds of financial machinations.”
However, Russia’s authorities are not yet much worried about the situation with the ruble. Russia’s Central Bank says that the staggering of the ruble’s rate is so far within the “norm”. At the same time, Russian top officials assure that Russia has enough money reserves and is ready to any turn of events.
On Thursday, Russian Deputy Prime Minister Arkady Dvorkovich said:
“Russia has enough reserves to be ready to any turn of events. As long as the oil prices are higher than they were provided by the budget, there may be no grounds for serious worries.”
At present, the rate of the Russian ruble is back to its level of 2009. However, Russia’s Central Bank still refrains from currency investments.
It should also be noted that gold is also becoming cheaper. Thus, at present, Russian businesspeople prefer to invest in what they believe to be the most stable currency – the US dollar.