South African Rand
Breaking further through support at
the 7.0000 handle, the USDZAR currency pair continued to lose ground on South
African rand strength. Penetrating
key support levels and the nearest Fibonacci retracement, the currency pair
continued to move on positive consumer retail sales figures in the South African
economy. Although pulling back in
the month of October, consumer spending remains supported in the near term
according to the report released by Statistics South Africa. For the month, retail sales growth
slowed to 8.8 percent on the year on year, down from the surprising 13.5 percent
jump seen in September. Notably
higher still, the recent figure now raises the likelihood that domestic demand
may be on a temporary pullback following the fourth rate increase by SARB
Governor Tito Mboweni since June.
Higher rates will tend to crimp domestic spending as the cost of money
increases at the consumer level, less of an incentive for individuals to
spend. Subsequently, the pullback
is in line with what Mboweni would like to see as the South African Reserve Bank
governor has stated and restated his concerns over the rising consumption habits
of citizens and the growing credit bill that is amassing to fit spending in the
economy. With inflation likely to
remain higher, but between the central bank’s target 3 to 6 percent range,
policy makers are still likely to keep a hawkish eye on the underlying currency,
disregarding the report’s results as anything significant. Coincidentally, central bank forecasts
remain lofty with expectations of price increases to rise above the 6 percent
benchmark in the second quarter of next year. The aforementioned should continue to
add further appreciative strength to the rand, comparatively lending to a longer
term slowdown in exports sector.
Mexican Peso
Still consolidating for the most
part, the Mexican peso was under some pressure following the lower industrial
production figures. Still
declining, the report continued the three month string, falling for the fourth
month as it seems that slack in US demand remains a concern for Latin America’s second largest economy. Notably, manufacturing continued its
slump along with construction and utility components, with a significant rise in
mining activity. For the month,
mining production bucked the recent down trend and rose 3.7 percent on the
month. Nonetheless, the overall
headline figure declined to the lowest level since April of this year, leaving
some to begin leaning on the likelihood of a rate cut by Mexico’s central
bank. Rates were left steady last
week as policy makers continued to see lower inflationary pressure and growth
prospects in the new year, pitting the economy to churn ahead lower at 3.6
percent year on year versus this year’s 4.5 percent. The sentiment is likely to keep the
underlying currency underwater against the US dollar, even as fundamentals in
the world’s largest economy continue to fall weaker. Now, it seems, the only reprieve in the
recent bout of depression for the Mexican peso will come through next week’s
retail sales figures. Consensus has
estimated a pickup in sales for the month, lending some interim support for the
Mexican bidder.
Nordics – Swedish,
Norway and Denmark
Supportive of the Nordic currencies,
but running completely against today’s price action, was the Norges bank
decision to raise benchmark interest rates. Increasing rates to 3.50 percent, policy
makers noted that rates would be raised in “small, not too frequent steps” in a
statement following the anticipated decision. Suggestive that further tightening is
likely not to arrive till March, market participants are still betting on a
likelihood that rates are going to continue their upward path as economic data
continues to shine a highly positive light for the Norwegian economy. Retail sales growth increased to an
annualized 8.3 percent pace in the month of October, the fastest pace in almost
eight years as wages continue to remain supportive of current consumption
trends. Subsequently, unemployment
decreased to the lowest in 18 years spurring a tightened labor market and
rapidly rising labor costs. With
more disposable income, consumers are now spending more on items than compared
with this time last year, supportive of higher rates of consumer prices. The notion alone is likely to keep
central bankers hawkishly biased, bolstering speculation of a rate hike in the
near term rather than later.
However, all three Scandinavian currencies were taken aback by higher
than expected retail sales figures in the US, failing a
breakthrough of key support levels in the currency pairs. Looking ahead, although Swedish
unemployment is expected to be released in the overnight, attention will likely
fall onto the Riksbank interest rate decision in two days time. Following the footsteps of the Norges
and Danish central bank, the Riksbank is expected to raise rates by another 25
basis points in order to curb inflationary pressures in the region, a common
theme with all three countries. In
this case, Riksbank members are perceived as slightly more aggressive, with many
looking for reaffirming statements following the decision heading into next
year.
Asian Bloc – Singapore and Hong
Kong
The Singapore dollar moved in contrary to Hong Kong
dollar movements in the New
York session, although both were incrementally
strengthened by an uptick in the monthly Chinese industrial production
figure. Rising by 14.9 percent, the
mainland’s overall productivity slumped closer to a two year low even though
rising double digits above the world’s largest economy. The annualized downtick was slightly
above the14.7 percent seen in October, and continues to suggest a gradual
weakness in line with current bank policy.
Incidentally, the reports results were lower than the peak in June of
19.5 percent and below the annualized average of 16 percent. Nonetheless, according to the survey,
exports skyrocketed by almost 33 percent, bringing results higher to 793.6
billion yuan according to the National Bureau of Statistics. With prospects still higher on expansion
in the economy, both Singapore and Hong
Kong currencies found some support during the session. The sentiment applied even more so to
the Hong Kong dollar as industrial production
is set for release for the country tomorrow. Expected to stay relatively positive,
industrial production in the economy is also expected to slow down in tandem
with the mainland’s measure. Since
topping out at 7 percent in the first quarter, the report has trailed lower in
the second quarter at 5.3 percent.
However, the consensus is anticipating a more steadied decline, which may
add to some near term strength for the underlying currency, keeping the USDHKD
pair below the 7.7750 figure.
Subsequently, the Singapore dollar is awaiting the
release of retail sales figures for the month of October. Expected to keep central bankers
relatively hawkish in the short term, sales are anticipated to have increased
once again to a 2.4 percent annualized rate, rising above the 1.7 percent seen
in the month of September. The
figure would bolster speculation of supported consumer spending lending to
overall expansion even as growth is expected to slow in the New Year. Subsequently, the notion is keeping the
underlying currency supported, pressuring the USDSGD pair through nine year lows
at 1.5416.
