South African Rand (7.0455)
As expected, the South African
Reserve Bank, the country’s central bank, increased interest rates by another 50
basis points as policy officials continue to be concerned over the emergence of
strength in consumer spending. Rising domestic consumption and an
appreciating rand are likely to stoke inflation to above the 3 to 6 percent
range instituted by monetary officials by the end of the year. As a result, Governor Mboweni and fellow
monetary authorities raised rates for the fourth time since July, increasing the
repurchase rate to 9 percent and sparking speculation in favor of the South
African currency. Trading near
7.1000 in the overnight, the rand has appreciated against the US dollar to trade
near 6.9900 as a result in the New
York session. Ultimately, given the carry friendly
environment, the increase is likely to spur further bullishness in favor of the
rand currency coupled with considerations to raise rates by 100 bps. During the meeting, policy officials
stated intents to increase rates by a full percentage point, but opted not to in
order to maintain a gradual tightening bias in order to consumer credit binging.
Concerns are not unwarranted as
household debt now reaches approximately 75 percent of disposable income. The notion simply confirms a further
hawkish bias which may produce another round of tightening early next year.
Separately, foreign currency
reserves increased by 2.2 percent in the month as gold and foreign currency
reserves were upped after a notable decline in the previous month. Gross reserves rose by $25.04 billion as
officials took advantage of a stronger rand to buy up dollar assets. Gold reserves, in turn, increased by 6.3
percent to $2.55 billion last month. Ultimately, the purchases have improved
the country’s debt rating, raising it to a BBB+ according to Fitch
Ratings.
Mexican Peso
(10.89)
The Mexican Peso weakened on the day
as consumer prices fell within expectations, boosting the notion that central
bankers will likely have a bearish bias when considering interest rate decisions
in the near term, with the next meeting being tomorrow. Consensus surveys had pitted consumer
prices to drop to 4.07 percent on the year on year, which the actual figure beat
out at 4.9 percent. However, the
recent figure for the month of November drops well below the 4.29 percent seen
in October as food, beverages and tobacco purchases slumped by 0.8 percent.
Core prices, however, remained
supported as housing costs continue to climb by 2.42 percent, supported by
rising expansion in the country with clothing and footwear adding its two cents.
Nonetheless, central bankers may
not be convinced that rate hikes should even be on the table with the market
consensus likely siding with a no action decision or even a dovish bias emerging
following tomorrow’s policy meeting.
As a result, overwhelming speculation has taken the underlying currency
higher past the 10.86 figure, with plenty of consolidation at the 10.90 before
the Asian session open.
Nordics – Swedish,
Norway and Denmark
Scandinavian activity was mostly
attributed to Danish economic figures in the session, with some help attributed
to the lone Swedish report and upticks in Norway’s
manufacturing sector. First and
foremost, Danish unemployment shrank yet again to a 4.1 percent rate. Bolstering speculation of a labor
shortage, the report was supported by growth in the exporting sector attributed
to rising prospects in Sweden
and Germany. As a result, with production likely to
continue higher, wage costs and inherent inflationary pressures are supportive
of the notion that central bankers will continue their tightening bias into the
new year as the economy is expected to duplicate the 3.4 percent rate of growth
seen in 2005, a record level.
Additionally confirming the sentiment were upticks in industrial
production and orders figures, following the unemployment announcement. Both measures vaulted higher, with
orders skyrocketing by 7.1 percent compared to a decline of 1 percent the month
prior. Ultimately, the reports lent
a further bullish bias before the Danmarks Nationalbank stated a rise in
benchmark interest rates to 3.75 percent.
Raising rates for the seventh time, monetary policy officials decided to
advance the rate in accordance with the European Central Bank’s decision to
raise rates to 3.50 percent as the central bank does own an obligation to keep
pace in order to retain the peg currently instituted. The decision is likely to boost further
speculation in both Norway
and Sweden as central banks are set to
meet on rates before the yearend.
Subsequently, economic data was also in favor of both economies’
increasing rates in their respective countries. Norwegian manufacturing was lifted by a
whopping 7.5 percent in the month of October, almost double the amount seen last
month. The increase in productivity
is likely to be reflected in the employment report next month, showing another
positive figure and increasing sentiment of a corresponding labor shortage. Separately, Sweden posted a
budget surplus of 5.5 billion kronor in November, more than the 3.8 billion
estimated by the consensus.
Asian Bloc – Singapore and Hong
Kong
Weakness
was witnessed early on as Asian currencies including the Singapore and Hong
Kong dollars traded slightly lower on the fact that Chinese
officials suggested intent on curbing speculation. Days after recording the strongest
performance, the Chinese yuan was taken aback as policy officials were noted as
considering opening the currency up to two way speculation. Should this happen, the currency would be
able to fluctuate back and forth, still restrained by the revised band set back
in 2005. The idea should cap
current sentiment that the underlying currency is set to only appreciate and not
depreciate on speculation. However,
other Asian currencies benefited on the day after the People’s Bank of
China released its annual financial
stability report. In the report,
released in the overnight, officials stated that the US dollar would weaken as
speculators and investors continue to search for viable opportunities in
Asia, boosting the likely bidding of proxy
currencies. The news supported both
currency pairs in the overnight with the Singapore dollar
gaining slightly to 1.5350, its fourth consecutive session gain. Subsequently, the Hong Kong dollar rose to 7.7682 against the US
dollar. Separately, foreign
currency reserves were also boosted in the month in both economies. Similar to South African purchases,
government officials took advantage of a stronger domestic currency in order to
buy up US dollars. For the month of
November, Hong Kong reserves rose to $132.7
billion compared to a previous $131.2 billion. Subsequently, Singapore
reserves were boosted to $135.32 billion from $131.91 billion in October.
