Riksbank Raises Rates, Temporary Support For Swedish Krona

South African Rand

The daily ranges keep getting narrower and narrower as we head into the weekend.  The South African rand was subject to some position paring following the week’s advance, hitting the lowest price in almost four months with traders taking positions off ahead of the close.  However, rand bullish sentiment still hovers heavy on the currency pair with the current pricing likely to serve as short term technical support at the 6.9000 level.  Now trading at 6.9785, the rand market is looking ahead to next week’s inflationary readings.  Scheduled for the week will be both consumer and producer price reports, which are likely to continue the suggestion of further tightening by the South African Reserve Bank.  For the month of November, consumer prices are expected to stay relatively unchanged.  However, with levels already at high levels, any further increase would do nothing but seal the deal on further rate hikes in at the next monetary meeting.  Currently, core rates are in between central bank targets of 3 and 6 percent, rising to an annualized 3.7 percent rate.  Subsequently, producer prices are anticipated to remain around the current whopping surprise of 10 percent.  With both measure sustained at higher levels, speculation is surely to add to rand strength in the coming week as Governor Tito Mboweni remains steadfast in his fight against price increases in the economy.  Partly fueled by rampant consumer spending domestically, Mboweni’s concerns should heighten on a worsening inflationary picture.  Separately, futures traders are in sync with such notions, already beginning to price in another rate tightening in the first half of the year.

Mexican Peso

A lack of economic data spurred little activity in the pair as traders look ahead to a full schedule next week, including some key data figures for the end of the year.  Ahead of the Christmas holiday, retail sales figures and the consumer price index are expected to show contradictory results.  Consumer prices are expected to have risen thinly in the bi weekly measure as retail sales figures are estimated to have improved by 2.1 percent in the month of October.  Subsequently, the lag in time may have some wondering about the validity of the retail sales figure which is already two months behind already released figures.  A simple consideration there is that the report lags behind the recent inauguration debate and lower industrial production figures, both which may have a more underlying effect on overall spending results.  In either case, both surveys are likely to continue to indicate a mounting likelihood that central bankers will keep rates at the current 7 percent in order to spur further domestic growth in Latin America’s second largest economy.  However, should surveys release weaker than expected, bears opt for a field day as it purports further rate cuts in the near term.

Nordics – Swedish, Norway and Denmark

All three currency pairs were led lower on the day even as economic fundamentals were ripe for appreciation in the Scandinavian currencies.  Rising in the overnight following the Riksbank decision, the pairs dipped on Nordic strength.  However, with dollar fundamentals improved, with emphasis placed on the US trade balance, traders quickly flipped on an intraday correction along with profit taking ahead of the weekend.  On the economic front, the Riksbank raised benchmark interest rates in the Swedish economy following promising economic data in the past couple of months.  Most recently, unemployment data declined for the fifth straight time to 4.3 percent, purporting a common regional theme of a tight labor force.  In addition to raising the rate to 3 percent, central bankers additionally noted that further rate hikes may be needed on mounting inflationary pressure in the near term future.  All but assuring a tightening bias in 2007, subsequent statements by officials still leave some consideration should fundamentals shift gears lower.  In Denmark, wholesale prices rose more than expected.  In the month of November, the survey printed a mild increase of 3.2 percent.  A likely result of recent consumption patterns on higher wages, the report continues to suggest rising prices.  Subsequently, the report is seen as mere justification to the recent rate tightening decision by policy makers with speculators expecting even more tightening on the horizon.  Rounding out the three, the trade balance surplus in the Norwegian economy expanded at a less than expected rate.  Although rising to 25.2 billion kroner, the surplus falls fro the 26.8 billion kroner seen in October.  It seems as though rising imports on rising consumption led the figure lower as exports dipped slightly in tandem.

Asian Bloc – Singapore and Hong Kong

Both Asian currencies took a turn for the worse against the US dollar as fundamentals and the notion of regional bank selling had Singapore and Hong Kong dollar bidders running for the hills.  Finding previous support, the USDSGD currency pair bounced off of the 1.5400 figure and headed higher in New York, while the USDHKD found a formidable barrier at the 7.7700 figure.  Sparking the session weakness was the October report on retail sales figures in the Singapore economy.  Slowing to a 20-month low, the survey showed that consumers hesitated in the month, contributing to widely lower figures compared to consensus estimations.  However, the massive decline was mostly attributed to a dampening haze that was the result of smoke from forest fires in neighboring Indonesia.  The haze cost companies and stores approximately $50 million in lost business as consumers were deterred, electing to remain indoors.  As a result, the survey increased by 1.6 percent, lower than the 2.4 percent median forecast and leading some to wonder about the momentum in the economy.  Nonetheless, the longer term picture remains intact as consumer sentiment and lower unemployment are likely to translate in to a positive pullback in the final months of the quarter.  Subsequently, pressure on Asian currencies was felt as no real resolution was seen out of the Paulson/Bernanke trip to Beijing with both parties, recognizing the other’s stance, but differing “in the timing of reforms”.  The notion coupled with some pressure on speculation that regional central banks may consider selling Asian based assets lent to further downside across the board.