Emerging Markets - IMF Upgrades Support Mexican Peso

South African Rand

Strengthening on the day, the South African rand was well supported even after a spate of dollar positivity in the New York session.  Increasing by 616 points, the rand was bolstered on trader buying as gold and platinum prices propped up the currency, bucking the slight uptrend in the currency pair in the past two sessions.  Now, on the week on week comparison, the rand has gained for the second consecutive week as rate speculation is rising in favor of the South African currency along with precious metal appreciation that has brought both metal contracts higher over the past five sessions.  Gold contracts on the COMEX division of the New York Mercantile Exchange were higher by $1.40 at $629.20.  With no economic data on the schedule, until the upcoming week, current momentum is unlikely to hold heading into the market close.  Separately, the stock market was buoyed on the day following the underlying advance, taking the benchmark index higher to finish at a record.  The FTSE/JSE Africa All Share Index added 163.44 points to 23,691.06 in Johannesburg with seventy-four stocks rising against 29 that fell, marking a 2.7 percent weekly gain.  Leading the charge were bellwether companies like BHP Billiton, rising 90 cents to 146.15 rand, and Anglo American.  The biggest mining investor in South Africa, shares of Anglo rose 2.79 rand to 343 rand.  The good vibes in both markets is likely to find some barriers next week as both the SACOB business confidence survey and industrial production report are estimated to have declined over the month.  Notably, industrial production is likely to have fallen back to a 3.5 percent year on year comparison.

Mexican Peso

With protests still weighing on the overall peso market, investors in the underlying currency found refuge in the morning’s release of growth forecasts issued by the International Monetary Fund.  For 2006, IMF officials raised growth forecasts for Latin America’s second largest economy, estimating that the region will experience a 4.4 percent rate of growth in the year.  The new figure is slightly above the 4 percent earlier estimate and bodes well for the economy as consumer spending remains strong despite some political unrest in the city-state of Oaxaca.  The comments were further backed by statements issued by Mexican Finance Minister Francisco Gil Diaz who subsequently raised the administration’s rate of growth for the year.  Attributed to higher prices of crude oil, boosting the country’s revenue, the Finance Minister hiked estimates to a 4.7 percent rate, 20 basis points above the 4.5 percent previously set estimate.  However, both assessments recognized that longer term economic growth is expected to slow to a 3.3 percent pace as demand from the United States is expected to thin, negatively effecting expansion.  Subsequently, equity markets were additionally boosted by the higher forecasts with the Mexican BOLSA rising 114.17 points to 23,156.45.

Nordics – Swedish, Norway and Denmark

Losing big on the day, all three Nordic based currencies took a tumble against the dollar as US economic fundamentals were improved on the employment front.  With no reports scheduled, all three pairs took a fall on an average of 208 points on the session attributed to profit taking by long positions in the market.  Overall gains on the week still weren’t bad considering speculation over the Norges bank decision in mid week that kept buyers supported till the weekend close.  Taking a look ahead, next week, traders will be evaluating the current inflationary environment through the month’s consumer price report for all three nations.  All relatively expected to remain within line of previous readings, the figures are expected to show continually tepid price increases on the month.  What may lend to some near term weakness, however, will be industrial production figures for the nation of Sweden.  Although rising at an annualized 7 percent pace, overall productivity is expected to pare back slightly, dipping to 5 percent in the year on year as the monthly is estimated to have remain unchanged.  The lower results will likely weigh on the Krona in the near term.  But with bullishness still baked into the underlying currency on aggressive hawkishness by the Riksbank, traders will likely bet on pullback bids.  

Hong Kong Dollar

Losing a paltry 8 points on the day, the Hong Kong dollar was a relative standstill on the final trading session of the week as traders attempted to work off of momentum from yesterday’s promising retail sales figures to no avail.  This is likely to leave a relatively tepid week ahead for HKD as there is but one release set for mid week, foreign currency reserves.  Rising to $130.3 billion in the previous month, expectations are for continued investment in connection with the peg control.  Separately, China’s central bank ordered its domestic lenders to increase internal reserves for the third time in order to stabilize recently rising investment.  The recent action is subsequent to the two interest rate increases since April as policy makers continue to remain pre-emptive of exploding inflation in one of the globe’s fastest growing economies.  Separately, stocks continued on a tear rising to another record in the overnight.  Closing up another 34.91 points, the Hang Seng Index hit 18,749.69 heading into the weekend.  The record close is beneficial for the underlying currency as it signals rising investment interest in the economy which is adding to HKD gains.  Rising 2.5 percent, the index is now on a string of five consecutive weekly gains, a streak that will be tested once again on Monday.

Singapore Dollar