Emerging Markets Daily - Danish Krona Rallies on Employment at 32-Year Highs

South African Rand

-    Inflation Cools, Mboweni Comments On Rates

A second consecutive move lower was in store for the South African Rand Thursday as encouraging words from SARB Governor Tito Mboweni helped to cover the bearish sentiment surrounding the largely expected cooling in producer inflation.  Though not putting up the strong 1600-point advance accumulated yesterday, the 710-point rally today was impressive none the less. With today’s range low in place just above 7.4500, USDZAR is now flirting with significant support.  In the past, this same level acted as resistance to hold off the big run through May and June that ultimately brought the US currency 15,000 points higher against the South African currency.  While the rand is beginning a fledgling advance, the Top-40 equities index was beginning to turn in favor of the bears.  The 1.4 percent drop was the biggest since early September.  The sudden shift in sentiment likely rested in the hands of the South African Reserve Bank Governor Tito Mboweni.  The central bank authority said after a softer inflation report this morning that the nation’s interest rates “cannot be described as high by historical standards” in his opinion.  This could be construed as an overtly bullish statement to the normally sensitive FX market, especially given the unsurprising nature of today’s price gauge.  September’s PPI sank for the first time in eight months in after a 0.7 percent contraction on the cheaper prices of oil and electricity.  On the back of the weak monthly report, the annual also contracted for the first time in six months to 9.0 percent growth.  However, the impact of this report was tempered as both changes came in as expected and the stubbornly high rand will continue to make up for any ease in the energy bill.

Mexican Peso

-    Peso Reaches New Seven-Month Highs on Demand for Government Bonds

The Mexican Peso established fresh 7-month highs, as expectations of lower inflation drove domestic bond premiums higher. Central bank governor Guillermo Ortiz said yesterday that the rate of inflation would drop below 4 percent through September, while annual growth would likely reach 4.7 percent through the end of 2006. Though lower inflation limits the likelihood of any further Banco de Mexico interest rate hikes, a more balanced currency outlook boosted attractiveness of Mexican bonds—driving the 10-year Global 75 centavos higher to 99.50. The yield spread between US and Mexican 10-year debt likewise fell to 97 basis points, pulling the USDMXN pair 0.3 percent lower to 10.73 by the US close. Improved outlook on Mexican assets was not enough to drive local equities higher, however, as the Bolsa Index stayed relatively unchanged at 23,389.35 on the day. A drop in oil prices held back stock markets, as key energy producing shares retraced recent gains. 

Nordics – Swedish, Norway and Denmark

-    Unemployment Report Drives Danish Krona to Fresh Monthly Highs

The Danish Krona gained 400 points against the Greenback, as a domestic labor report unexpectedly showed unemployment at the lowest since 1974. Renewed bullishness in the Danish economy did not spread to its Nordic neighbors, however, as the Swedish Krona dropped as many as 250 points against the Euro through early London trading hours. Traders pushed the EURSEK higher following the Riksbank’s decision to raise interest rates by 25bp to 2.75 percent. Markets had previously priced in a 100 percent likelihood of such a hike and responded poorly to perceived dovish commentary from bank officials. Subsequent Riksbank commentary said that any further interest rate increases would be gradual, disappointing those who predicted a much more hawkish tone. The central bank statement served to push bond yields lower, with Swedish 10-year debt losing 2 basis points to 3.77 percent. Perhaps surprisingly, however, the domestic OMX Stockholm 30 equities index edged 0.5 percent lower to 1094.62 through the close.  Traders showed hesitation ahead of tomorrow’s Retail Sales and Consumer Confidence reports, both due at 7:30 GMT (3:30 EST) on the 27^th.

Hong Kong Dollar

-    Weak Trade And Record High In Stocks Pull On HKD

The Hong Kong Dollar spent another session in its volatile range against the benchmark US dollar as a rebound in the external trade deficit and a record in the benchmark equities index pulled the currency in opposing directions.  Technically, with today’s daily bar nearing its close, the pair continues with the norm that has evolved in this closely contained pair for the past two weeks.  A morning spike high topped out around 7.7855, but was later retraced for a full 50 points to around 7.7805.  Lower highs are still forming and the 0.7800 level is bearing the pressure.  The later session relief for the currency may have formed under the run in equities.  The benchmark Hang Seng Index gapped on the open and closed the day 1.1 percent higher at a record 18,353.74.  Also playing its part in the pushing the HKD, today’s external trade balance report for September was the only scheduled release.  The shortfall grew to HKD11.7 billion from HKD9.4 billion as shipments to mainland China slowed.  China’s recent clamp down on booming investment will be particularly burdensome for Hong Kong exports, which cooled to a 4.7 percent rate of expansion from 9.9 percent the month before. Looking to the docket, there are no scheduled indicators from the nation due until the 31st.

Singapore Dollar

-    Factory Report Sends Singapore To New Highs

Singapore Dollar bulls were vindicated this morning when a strong factory report offered fundamental significance to the now three-day rally.  In this short span, the USDSGD has slid nearly 100 points to a one-and-a-half month low that increasingly pushes the envelope for oversold conditions.  When looking to the larger time frames of USDSGD spot action, today’s Singapore dollar rally marks the third touch on a rising trendline.  However, as the adage goes it takes three confirmed touches on a trendline before it is valid, so a retracement may be needed before it is confirmed.  In other market’s news, the currency wasn’t the only strong asset in Singapore.  The Straits Time Index, like the Hang Seng, marked a record high close at 2,741.69 after a strong industrial production figure hit the newswires.  For the month of September, factory output jumped 11.2 percent for the first increase in three months. Looking to the different industries, the improvement was fairly consistent as all group provided a positive print.  This biggest improvement however came from transport engineering which accelerated to 45.7 percent growth for the month.  Looking ahead, there are no new indicators until next week, potentially making the case for a rebound in the Singapore dollar.

Chart of the Day:  Singapore Dollar Daily Chart