South African Rand
There wasn’t much news or data to
move the South African rand market, keeping the underlying currency in a
relative standstill against the US dollar in New York. As a result, the currency pair is
trading nearly even with the session open, currently at 6.9660 in afternoon
trading. Competing against more
slightly optimistic US data in the morning, info on initial jobless claims, was
sentiment that yields will likely continue to rise in the South African economy,
furthering the advantage that rand based assets present over greenback based
assets. Raising the benchmark
interest rates another 25 basis points, recently, South African Reserve Bank
Governor Mboweni will likely consider more tightening in the new year as
consumer spending is producing a ballooning credit bubble in the country. Subsequently, the surge in spending is
also causing inflationary pressures to likely peak above the central bank’s
target range early in 2007 forcing leaders to take action. Both factors will keep policy makers on
their toes and will also add to rand strengthening as markets are slowly
digesting the reality of a lowered Federal Reserve counter rate. Separately, gold prices added to
downward pressure on the underlying rand as valuations on the commodity dipped
in the near term. As dollar assets
rose, traders sold long gold positions, taking the contract lower to just above
the $630 figure. One thing
additionally to note is that technically the currency seems to be supported by
key bids in the near term just above support at the 6.9000 handle. Should the support figure fail, near
term appreciation in the rand is likely.
Mexican Peso
The Mexican Peso strengthened on the
day attributed mostly to capital flows on the corporate level that is set to end
tomorrow. Similar to repatriation
at the end of every Japanese fiscal year, the movement of funds helped the peso
to drive higher against the US dollar with mixed interest on a lessened risk
aversion sentiment in the New
York session.
Subsequently, the price action has taken out the 10.8000 support figure
with the currency pair trading at 10.7743 as we near the close of the day. Interestingly enough, with the risk
aversion sentiment seemingly taking a back seat once again, the carry advantage
is taking center stage even as the Mexican central bank is considering scaling
back on the benchmark interest rate in 2007. Nonetheless, the 7 percent rate is
looking increasingly attractive to foreign investors, even if the return is only
equivalent to 125 basis points.
Technically, the spot price is set for limited gains in the short term as
we approach the 10.75-10.70 region.
Plenty of support is residing at those levels, with dollar bidders likely
to add to the strength of the barrier.
However, with mounting speculation on the lowered risk aversion, it would
be a key break for higher appreciation on the Mexican peso
side.
Nordics – Swedish,
Norway and
Denmark
Scandinavian currencies were under
pressure for the second consecutive session as all three remained under pressure
against the US dollar heading into the close. The move was unexpected as crude oil
contracts moved higher in New
York and fundamentals support further momentum on the
part of the Nordics. Released in
the overnight, Swedish unemployment ticked lower for the fifth straight month in
November. Declining to 4.6 percent
in October, the labor market continues to improve in the Swedish economy,
purporting a likely rate hike tomorrow when policy makers meet on benchmark
interest rates. Unemployment ticked
lower on the year on year comparison as the number of unemployed shrank to
199,000 from 227,000, a 13 percent annualized drop. Coupled with recently positive economic
figures, the market has priced in tomorrow’s rate hike to three percent. The decision should give a slight lift
to the currencies with all three economies likely to follow further tightening
patterns next year on positive growth forecasts. Separately, Norway’s central
bank governor was out reinforcing Krone bullishness in the overnight. Following the recent decision to raise
interest rates by 25 basis points, Governor Gjerdrem made note that the economy
continues to purport a relatively low interest rate at the current time. He also noted that, as a result, “we
forecast that our interest rate can come up to around 5.5% in about a year and a
half, but such a forecast” remains “uncertain." The statements couldn’t save the
Norwegian krone, which fell through the 6.1500 resistance figure in the short
term against the US dollar.
Asian Bloc – Singapore and Hong
Kong
Asian bloc currencies involving the
Hong Kong and Singapore
dollars were relatively staid on the session, as traders in both currencies
waited for further details of discussions between Chinese officials and both
US representatives in their two day
meeting. Already in talks, both US
Treasury Secretary and Federal Reserve Chairman Ben Bernanke are likely to
strive for increased flexibility in the Chinese yuan as per requests from US
based manufacturers. Although
highly unlikely at this point, any comments are pressing for both currencies as
policy makers in both Hong Kong and Singapore economies have noted an increased
awareness of the underlying yuan’s fluctuations. Notably, pressing on the Hong Kong dollar were slower than expected industrial
production figures for the third quarter.
In line with the mainland’s report just yesterday, IP for the economy
dropped 0.6 percent on the year on year.
The depressing figure follows a 5.3 percent surge in the previous quarter
and looks to adversely affect the wider gross domestic product measure. Although the food and beverage sector
continued to add to the overall headline figure by an increase of 12.3 percent,
the report was led lower by precipitous plunges in textiles and electrical
productions. Both sectors reversed
previous gains, declining by 12.8 and 7.3 percent respectively. However, one upside report continued to
support the current hawkish bias as producer prices rose in line with the
previous quarter’s figure by 2.6 percent.
Above the 2.4 percent revised figure for the second quarter, the survey
is indicative of rising prices on higher costs even as supply production
slackens temporarily.
