Mexican Peso Stalls Ahead of Tomorrow’s FOMC Meeting

South African Rand
The South African Rand made yet another attempt to break through the 7.0000 mark, but bids below the psychologically significant figure kept it above for the third consecutive day. A small gain in precious metals prices provided a boost for the ZAR, which continues very close to fresh 4-month highs against its US counterpart. Regardless, selling pressure was not enough to keep it substantively stronger ahead of tomorrow’s FOMC meeting. Falling equity prices were also restraining any further ZAR gains, with the FTSE Africa Top 40 losing 55.54 points to 21485.50 through the close. Perhaps the saving grace could be seen as local bond markets, with higher yields improving demand for the domestic currency. The yield advantage may come into question tomorrow, however, with any hawkish FOMC commentary likely boosting US yields and narrowing the spread enjoyed by a USDZAR short. Otherwise, Rand traders will look to their own retail sales figures due at 9:00 GMT (4:00 EDT), with bulls hoping that continued strength will lead the broader economy higher. The ZAR’s persistence above 7.0000 suggests that there will need to be significantly USD-bearish or Rand-bullish news for a sustained push below. 

Mexican Peso
Softer commodity prices and quiet trade ahead of tomorrow’s US FOMC meeting led the Mexican Peso slightly lower against its northern counterpart. Despite falling in earlier price action, the USDMXN rose over 20 centavos off of its open to challenge previous intraday highs at 10.85 through the afternoon. A lack of interest in initiating further shorts left price action stalled, as some feared illiquid volatility on tomorrow’s national Mexican bank holiday. With no new domestic economic news through the day, traders now look forward to the aforementioned FOMC interest rate decision due at 19:15 GMT (14:15 EDT). Given that the Mexican Peso has benefited from a widening carry advantage against the US Dollar, any indication that the Fed will leave rates unchanged for longer than priced in will give the USD a boost against its EM counterparts. Futures prices show expectations of steady Fed Funds Rates through March 07, but December 07 Eurodollar contracts currently reflect a combined 75 basis points of easing. Risks may remain to the upside for the US dollar, with a more hawkish stance likely to narrow bond yield spreads across Emerging Market currencies.

Nordics – Sweden, Norway and Denmark
The Nordics continued to give up ground against the euro and US dollar Monday despite a smattering of economic releases from each country that boosted the fundamental appeal of the Scandinavian currencies.  Amongst the three national currencies, the biggest move was seen in the Danish krone, which rallied some 880 points against the US dollar to retrace a bigger sell off beginning on Friday.  The interest in the currency was founded on the first increase in the nation’s consumer price gauge in five months in November.  However, the step up in the annual pace to 1.7 percent was in line with expectations, while the core print had actually eased slightly.  Overall, price pressures seem to remain constrained to around 2.0 percent and are not reflective of an unemployment rate at a 32-year low that has in turn led the IMF to say the economy is in danger of overheating.  Besides the inflation numbers, the Danish calendar was also populated by the monthly trade accounts.  The current account surplus for October slipped to 3.6 billion kroner from a downward revised 5.8 billion positive gap the month before.  According to Statistics Denmark’s breakdown, the decline was primarily due to a drop in the value of oil exports and a decline in freight rates charged by domestic shipping companies.  Elsewhere in Northern Europe, the Swedish krona found its own bid from a better than expected employment report.  The nation’s jobless rate eased for a fourth consecutive month in November to a four-and-a-half year low 3.7 percent.  Sweden’s central bank, Riksbank, has lifted the nation’s overnight lending rate five times this year in an effort to temper growth to sustainable levels.  As the jobless rate continues to edge lower, expectations for economic growth to reach six year highs grow, and the possibility of a rate hike consequently improves.  Finally, Norway was releasing its own inflation numbers from both the consumer and factory sectors.  November CPI met expectations on nearly all of its calculations; however it was the unexpected 0.8 percent increase on the year that caught the markets off guard.  With the third consecutive increase in three months, predictions of another rate hike are growing more robust.

Chart of the day: USDZAR Momentum remains to the downside despite persistence above 7.0000