· South African Rand – SARB Raises Rates To Boost South African Rand
· Mexican Peso – Consumer Prices Slow, Weakens Mexican Peso
· Nordics – Danish Central Bank Hikes Rates By Another 25 Basis Points
· Asian Bloc – Asian Currencies Lifted On PBOC Assessment
South African Rand (7.0455)
As expected, the South African Reserve Bank, the country’s central bank, increased interest rates by another 50 basis points as policy officials continue to be concerned over the emergence of strength in consumer spending. Rising domestic consumption and an appreciating rand are likely to stoke inflation to above the 3 to 6 percent range instituted by monetary officials by the end of the year. As a result, Governor Mboweni and fellow monetary authorities raised rates for the fourth time since July, increasing the repurchase rate to 9 percent and sparking speculation in favor of the South African currency. Trading near 7.1000 in the overnight, the rand has appreciated against the US dollar to trade near 6.9900 as a result in the New York session. Ultimately, given the carry friendly environment, the increase is likely to spur further bullishness in favor of the rand currency coupled with considerations to raise rates by 100 bps. During the meeting, policy officials stated intents to increase rates by a full percentage point, but opted not to in order to maintain a gradual tightening bias in order to consumer credit binging. Concerns are not unwarranted as household debt now reaches approximately 75 percent of disposable income. The notion simply confirms a further hawkish bias which may produce another round of tightening early next year. Separately, foreign currency reserves increased by 2.2 percent in the month as gold and foreign currency reserves were upped after a notable decline in the previous month. Gross reserves rose by $25.04 billion as officials took advantage of a stronger rand to buy up dollar assets. Gold reserves, in turn, increased by 6.3 percent to $2.55 billion last month. Ultimately, the purchases have improved the country’s debt rating, raising it to a BBB+ according to Fitch Ratings.
Mexican Peso (10.89)
The Mexican Peso weakened on the day as consumer prices fell within expectations, boosting the notion that central bankers will likely have a bearish bias when considering interest rate decisions in the near term, with the next meeting being tomorrow. Consensus surveys had pitted consumer prices to drop to 4.07 percent on the year on year, which the actual figure beat out at 4.9 percent. However, the recent figure for the month of November drops well below the 4.29 percent seen in October as food, beverages and tobacco purchases slumped by 0.8 percent. Core prices, however, remained supported as housing costs continue to climb by 2.42 percent, supported by rising expansion in the country with clothing and footwear adding its two cents. Nonetheless, central bankers may not be convinced that rate hikes should even be on the table with the market consensus likely siding with a no action decision or even a dovish bias emerging following tomorrow’s policy meeting. As a result, overwhelming speculation has taken the underlying currency higher past the 10.86 figure, with plenty of consolidation at the 10.90 before the Asian session open.
Nordics – Swedish, Norway and Denmark
Scandinavian activity was mostly attributed to Danish economic figures in the session, with some help attributed to the lone Swedish report and upticks in Norway’s manufacturing sector. First and foremost, Danish unemployment shrank yet again to a 4.1 percent rate. Bolstering speculation of a labor shortage, the report was supported by growth in the exporting sector attributed to rising prospects in Sweden and Germany. As a result, with production likely to continue higher, wage costs and inherent inflationary pressures are supportive of the notion that central bankers will continue their tightening bias into the new year as the economy is expected to duplicate the 3.4 percent rate of growth seen in 2005, a record level. Additionally confirming the sentiment were upticks in industrial production and orders figures, following the unemployment announcement. Both measures vaulted higher, with orders skyrocketing by 7.1 percent compared to a decline of 1 percent the month prior. Ultimately, the reports lent a further bullish bias before the Danmarks Nationalbank stated a rise in benchmark interest rates to 3.75 percent. Raising rates for the seventh time, monetary policy officials decided to advance the rate in accordance with the European Central Bank’s decision to raise rates to 3.50 percent as the central bank does own an obligation to keep pace in order to retain the peg currently instituted. The decision is likely to boost further speculation in both Norway and Sweden as central banks are set to meet on rates before the yearend. Subsequently, economic data was also in favor of both economies’ increasing rates in their respective countries. Norwegian manufacturing was lifted by a whopping 7.5 percent in the month of October, almost double the amount seen last month. The increase in productivity is likely to be reflected in the employment report next month, showing another positive figure and increasing sentiment of a corresponding labor shortage. Separately, Sweden posted a budget surplus of 5.5 billion kronor in November, more than the 3.8 billion estimated by the consensus.
Asian Bloc – Singapore and Hong Kong
Weakness was witnessed early on as Asian currencies including the Singapore and Hong Kong dollars traded slightly lower on the fact that Chinese officials suggested intent on curbing speculation. Days after recording the strongest performance, the Chinese yuan was taken aback as policy officials were noted as considering opening the currency up to two way speculation. Should this happen, the currency would be able to fluctuate back and forth, still restrained by the revised band set back in 2005. The idea should cap current sentiment that the underlying currency is set to only appreciate and not depreciate on speculation. However, other Asian currencies benefited on the day after the People’s Bank of China released its annual financial stability report. In the report, released in the overnight, officials stated that the US dollar would weaken as speculators and investors continue to search for viable opportunities in Asia, boosting the likely bidding of proxy currencies. The news supported both currency pairs in the overnight with the Singapore dollar gaining slightly to 1.5350, its fourth consecutive session gain. Subsequently, the Hong Kong dollar rose to 7.7682 against the US dollar. Separately, foreign currency reserves were also boosted in the month in both economies. Similar to South African purchases, government officials took advantage of a stronger domestic currency in order to buy up US dollars. For the month of November, Hong Kong reserves rose to $132.7 billion compared to a previous $131.2 billion. Subsequently, Singapore reserves were boosted to $135.32 billion from $131.91 billion in October.