DailyFX Update (9/08/2023): Strong USD Causing other currencies to be weaker!

Dollar Stays Strong Due to Safe-Haven Demand

On Wednesday (9/08/2023), the measure of the value of the dollar compared to other currencies went a bit lower, dropping below 102.5. But don't be fooled – it's still quite strong compared to how it's been over the past month. This happened because people got worried about the banking situation in the US and the uncertain economy in China. When things get uncertain, folks tend to want to keep their money in a safe place, like the US dollar.

Just yesterday, a company called Moody's said that ten smaller and medium-sized banks in the US are not doing as well as they used to, and they might have trouble paying back the money they owe. This made their "credit rating" go down, kind of like a report card for how well they're doing financially. Moody's also said that other big banks in the US could have similar problems soon.

Meanwhile, in China, the newest numbers we have to tell us that the country is buying and selling less stuff with other countries than it used to. Also, the things people buy are not getting more expensive like they usually do – they're actually getting a bit cheaper. This can be a problem because if prices keep going down, people might stop spending money, and that's not good for the economy.

In Italy, the government made a decision that's putting pressure on the banks there. They decided to take 40% of the profits that the banks made as a one-time tax. This means the banks will have less money left over to do other things.

Now, everyone is waiting to see what happens with the prices of things in the US. We'll get new information later this week. This information is important because it helps us figure out how the economy is doing and what the people who make money decisions might do next.

Euro Slips Beneath $1.1 Mark

The euro lost more value, dropping to $1.094. This happened because people felt safer using the dollar. They got worried about how well the world's economy is doing and about the banking industry, especially in the US.

The newest numbers we have about China's economy show that they're buying and selling less stuff with other countries than they used to. This is because people are not wanting to buy as much, so there's less demand for things.

At the same time, a company called Moody's said that 10 banks in the US are not doing as well as before, and they might have trouble paying back the money they owe. So, their rating went down, kind of like a grade on a report card. Moody's also mentioned that big banks in the US could have similar problems soon.

Over in Europe, banks in Italy had a tough time because the government decided to take 40% of the extra profits they made. This left the banks with less money to use.

As for money decisions, there's a thought that the European Central Bank (ECB) might make the cost of borrowing money go up later this year. This is because the prices of things in the Euro Area didn't slow down in July like people thought they would.

CAD Getting Weaker! 

The Canadian dollar got a bit weaker compared to the US dollar, reaching its lowest point in more

than two months. This happened because Canada's trade balance showed that they bought more

stuff from other countries than they sold, which made their money flow out of the country. This put

pressure on their currency, called the loonie.

At the same time, the newest job data told us that more people in Canada were out of work, and

this made the unemployment rate go up to the highest it's been in a year and a half – 5.5%. Even

though wages went up by 5%, it's still a bit hard to find jobs for everyone.

This situation is making the people who make decisions about Canada's money, like the Bank of

Canada (BoC), think hard. They're trying to decide if they should raise interest rates in September.

Interest rates are like the cost of borrowing money, and they can influence how people spend and

save. But there's a lot of different information to consider. 

Prices of things are also a bit confusing right now. The rate at which prices are going up slowed

down to 2.8%, which is good because it means things aren't getting way more expensive super fast.

But there's another way to look at prices called "trimmed-mean core inflation rate," and that

actually went up to 3.7%, which was higher than what people expected.

Yen Weakens Due to Stronger Dollar

The Japanese yen lost its value against the dollar, going past 143 yen for one dollar. This made it weaker and it hasn't been this weak in a month. This happened because the US economy seemed strong and people thought that the Federal Reserve (which makes money rules) would keep things a bit tight when it comes to borrowing money. This made the dollar stronger compared to other important currencies.

At home in Japan, the newest information we have shows that they made more money from other countries than they spent in June. But at the same time, the money that people and families spent, as well as the wages they earned, went down a bit.

When it comes to money rules, the Bank of Japan (BOJ) made some moves in July that surprised people. They didn't change the cost of borrowing money, but they did something to make the way they control interest rates a bit more flexible. This is kind of like changing how they play a game. This surprised people because it was the first time the BOJ did something like this in a while. It might make people think that they'll make more changes in the future.

Australian Dollar Feels the Strain from Soft Chinese Trade Numbers

The Australian dollar dropped below $0.657, getting closer to its lowest level in two months. This happened because the trade data between Australia and China, their biggest trading partner, didn't look very good. This made the Australian dollar weaker.

Also, the US dollar was strong in general, which put more pressure on the Australian dollar. This happened because things seemed to be going well in the US, and people thought that the Federal Reserve (which makes money decisions) would keep things kind of tight when it comes to borrowing money.

Back home in Australia, the people who make money choices at the Reserve Bank of Australia talked about what they're planning to do. They said they want to see prices not go up too much, and they expect this to happen by the end of 2025. They also mentioned that the economy might not grow as much as they thought – it could be around 0.9% this year instead of 1.2%. When they met in August, they decided not to change the cost of borrowing money, even though some thought they might raise it a little bit. They want more time to see what happens after they raised it before.

New Zealand Dollar Slightly Increases

The New Zealand dollar was worth about $0.6063 on Wednesday. It had dropped to its lowest point in two months before, touching $0.6035 in the last session. People were starting to hope that the Reserve Bank of New Zealand (RBNZ) might keep interest rates high for a longer time because prices for things were not going up as much as they wanted them to. The RBNZ is going to talk about what they want to do next week in a meeting. They had already made borrowing money a bit more expensive by 5.25% since late 2021.

But there were things that made the New Zealand dollar not go up too much. Prices for things that people buy and sell in China, which is a big partner for New Zealand, went down for the first time in more than two years. Also, the prices for things that companies make also kept falling for the tenth month in a row.

In New Zealand, they are going to tell us about how much more expensive food got in July. In June, it was the most expensive it's been since September 1987, going up by 12.5%.

The value of the dollar compared to other currencies went down a little bit to about 102.5. But it's still not far from the highest point it's been in over 5 weeks. People were worried about banks in the US after a company called Moody's said that some of them weren't doing so well.