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Emerging Markets Daily - Peso Strengthens Despite Weak Inflation, Trade

By , Quantitative Strategist
24 October 2006 22:58 GMT

South African Rand

- Rand Stems Early Declines on Rising Gold Prices

The South African Rand fell for the third consecutive daily session, as persistent fears over a current account deficit near 25-year highs allowed the USDZAR to strengthen. A later rally in gold prices was enough to halt the ascent, however, with the currency pair retracing over 700 points from daily highs at time of writing. Given that South Africa is the world’s largest producer of both gold and platinum, the domestic currency stood to gain on the small rebound in precious metals markets. Broader gains in commodity markets were also enough to push equities higher, with the South African Top-40 index 0.22 percent stronger to 21,572.94 on the day. Traders were reluctant to force a sharper rally ahead of tomorrow’s consumer price index report, with fears that heightened inflationary pressures may provide reason for the central bank to continue raising interest rates. Median analyst forecasts call for a moderation in monthly price gains through August, but an annualized prediction above 5 percent highlights risks to price stability. A drop in government bond yields suggests that traders expect few surprises out of tomorrow’s sole economic release. Regardless, any surprises could pull the USDZAR currency pair further off of today’s highs.

Mexican Peso

- Peso Strengthens Despite Easing Inflation, Growing Deficit

Though the fundamental action didn’t kick in until later in the afternoon in Mexico, the peso was making its move against the US dollar early.  Quickly putting an end to a two-day advance, the USDMXN was rebuffed early in the US session by resistance around 10.8725.  From there, a retracement and test of the 10.7930 level confirmed the opposing level of support and solidified a range that has been in place since the 16th.  Though Mexico’s currency was moving higher, the nation’s benchmark equities index was stalling.  A massive 41 percent rally in the Bolsa Index since June may be running out of steam.  As daily ranges consistently shrink and concerns over slowing demand from the US take hold, the long-lasting uptrend seems to grow more and more overbought every day.  Data from within the boarders may also play a roll in the strength of stock, and will almost certainly determine the life of the USDMXN’s range.  Prior to the day’s economic releases this afternoon, markets were assuaged by assurances by Banco de Mexico’s Deputy Governor Everardo Elizondo that further rate hikes would not likely be needed in the months ahead.  According to Elizondo, Mexico’s annual inflation rate may fall to 3 percent in 2007 from its current perch at 4.1 percent through September.  Supporting these initial remarks, the bi-monthly report slowed to a 0.28 percent clip from 0.6 percent.  This was backed by a September trade deficit that was the largest record since November of last year.  A 1.35 billion peso deficit is another glaring reminder that exports to the US are vital to economic growth.

Nordics – Swedish, Norway and Denmark

- Modest Bid On Light Data, Rebound In Oil

As a session light on economic data passed, the Nordic currencies were able to facilitate a modest bid in the more liquid North American hours.  The Norwegian Krona made the most consistent move by pushing below its 50-day SMA on a nearly 400-point move to 8.3696 against the benchmark euro.  The USDDKK, in comparison, was sporting a modest advance of its own.  However, despite the pair’s 50-point dip in favor of the Danish unit, the daily bar formed yet another higher high and higher low, to keep the fledgling upswing intact.  Unlike the consistent, late-session advance in currencies; the regional equities indices were not moving in tandem.   Marking the only advance for the day, and the largest absolute move, Norway’s OBX Index rose 0.7 percent.   Countering this, Sweden’s OMX Stockholm 30 slipped 0.1 percent while the Denmark Copenhagen 20 Index dropped 0.6 percent as weak earnings reports sent banking and energy sectors lower.  Triggering the broad pessimism in financial shares early this morning, Stockholm-based Svenska Handelsbanken announced its third quarter net income dropped 27 percent to soundly outpace analysts’ expectations.  Looking towards broader economic news, capital and exchange markets found Denmark’s consumer sentiment gauge for October a market worthy indicator to factor into fundamental evaluations.  Danish consumers were reporting greater confidence in their outlooks for their financial situations, but overriding pessimism in their current positions helped to keep the headline number unchanged at 9.3 for the month.  From the component data, plans to buy major purchases dropped to negative 9.4, while plans to make such expenditures in the coming twelve months grew for the first time in four months.  Looking ahead, tomorrow’s economic calendar sole occupier is Sweden’s trade report for September, which is predicted to print a 14.2 billion kronor surplus following the 9.5 billion kronor positive read the month before.  Another issue likely to spark the interest of market participants in the days ahead will be the action in Brent and WTI crude prices.  The former grew 1.2 percent this morning as cold weather gripped the US and put the spotlight on OPEC’s supply cuts.

Hong Kong Dollar

- HKD Relatively Little Changed Despite Domestic Equities at 6-year Highs

The Hong Kong Dollar remained little changed from yesterday’s close, as earlier losses gave way to a moderate HKD recovery. Overnight gains in commodity prices were seemingly enough to limit the effects of a strong equities rally, as the Hang Seng index added 0.4 percent to finish at its highest since early 2000. Analysts cite expectations of future stock market declines as a primary restraint on a stronger Hong Kong Dollar advance, with many claims that the index is unlikely to surpass the psychologically significant 19,000 mark. A relatively bearish outlook on future equity gains was seemingly enough to push bond prices higher, with HK 10-year Government bond yields falling a single basis point to 4.02 percent. Traders will likely wait for Thursday’s Hong Kong Trade Balance report for confirmation of waning growth prospects, with any surprises to the downside likely to push the HKD lower against its US namesake. 

Singapore Dollar

- Singapore Dollar Recovers Losses Despite Empty Economic Calendar

The Singapore Dollar remained just 15 points off of its daily open through the New York session, as domestic markets remained closed on national holiday. After dropping 50 points to a fresh weekly low, the USDSGD rallied sharply to stay relatively unchanged in the past 24 hours of trading. The pair’s sharp rebound at the 1.5710 mark suggests that further declines may be limited. Indeed, yesterday’s soft inflation report suggested that the Monetary Authority of Singapore is unlikely to allow the domestic currency to appreciate in the short term. This outlook could change, however, if tomorrow’s Industrial Production data shows a larger-than-expected rebound in domestic output growth. 


Chart of the Day:  Singapore Dollar 15-Minute Chart

2006.10.24Emerging

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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24 October 2006 22:58 GMT