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South African Economic Data Remains Bullish Ahead Of Central Bank Announcement

Wednesday, 06 December 2006 19:31:11 GMT  |  Richard Lee, Strategist

·          South African Rand – Economic Data Remains Bullish Ahead Of SARB Decision

·          Mexican Peso – Traders Await Inflationary Data For Mexican Peso

·          Nordics – Plenty Of Upcoming Data For Nordics

·          Asian Bloc – Yuan Pares Back On Speculation, Takes Hong Kong Dollar With It

 

South African Rand (7.0878)

Strengthening for the third straight session, the South African rand benefited from speculation amassed prior to the two day monetary policy meeting and economic data that favored further interest rate tightening.  In the overnight, both consumer spending and manufacturing surveys printed figures are likely to sway central bankers in raising interest rates for the fourth time this year on concerns that inflationary pressures and a credit bubble may be forming.  For the month of September, retail sales surged 13.6 percent in the year on year as consumers widely disregarding the rise in borrowing costs.  The penchant has contributed widely to a record surge of 27.5 percent in October in credit growth, prompting concern from central bank Governor Tito Mboweni.  Subsequently, South African manufacturing figures were higher in the month of October according to Statistics South Africa.  On the annualized comparison, manufacturing actually grew at a 7.5 percent, trumping consensus estimates and far out pacing the previous 1.9 percent increase.  Attributed to the acceleration in growth, exports grew in competitiveness as a lower rand made domestic goods more affordable in the global forum.  Incidentally, consumer spending also contributed a fair amount as domestic demand has lent some strength to regional manufacturers and providers on strong spending.  Ultimately, both reports are upping the likelihood that rates will be tightened once again later tomorrow.  As a result, momentum still plays on the side of the South African rand even as the underlying currency pair continues to hover around the 7.1000 support figure.

 

Mexican Peso (10.84)

Inflation has come to the forefront of the Mexican peso speculation as the region is expected to have shown inflationary pressures that slowed in the month.  Set for release tomorrow, the consumer price index report is anticipated to have pulled back from increases that were witnessed last month, attributed to agricultural price increases.  In the month of October, the annualized inflationary level fell at 4.3 percent, well above the central bank’s 2 to 4 percent range, even sparking some speculation on near term action.  However, with prices likely to have fallen back, any near term action would be in the form of a standstill as the Banxico de Mexico recently ended a string of rate cuts in order to spur domestic consumption and is unlikely to consider a rate hike in the near future.  Subsequently, the aforementioned notion has prompted some bidding in the bond markets as yields are relatively attractive at the current level.  Coupled with a rise in crude oil contracts, the underlying currency gained incrementally against the US dollar in the New York session.  Now formidably below the 10.85 figure, further weakness could ensue in the overnight, should the 10.80 level be overtaken.

 

Nordics – Swedish, Norway and Denmark

Thin ranges were once again a theme for the Scandinavian currencies as economic data was nonexistent on the day.  However, taking a look forward, traders will be pleased to see the rather full schedule ahead of them tomorrow.  In regards to the Danish economy, traders will be focused on the unemployment rate for the month of October.  Narrowing to 4.2 percent, the figure is once again expected to narrow to 4.1 percent as the country continues to see positive employment growth on economic expansion.  The report is likely to be coupled with an optimistic industrial production and orders reports.  Both surveys are expected to show a moderation in production, however, lend a positive bias as the previous figures follow extreme advances from the previous month.  Nonetheless, rate expectations should still remain healthy as the region is expected to keep up with rate hike expectations in both Norway and Sweden.  In Norway, following the positive gross domestic product figures, industrial and manufacturing production are expected to reverse extreme declines in the previous month.  Subsequently, the sentiment is in line with the manufacturing figure which is expected to advance by 4.4 percent, a slight improvement from the 3.8 percent seen the prior month.  Ultimately, further downside in any regional reports for the three currencies is likely to be mediated by the fact that rates are expected to rise in conjunction with weakening dollar fundamentals, boosting bullishness at least in the near term.  Separately, higher crude oil gave NOK bulls something to think about as incremental strength on the day was derived from the contract’s incremental increase.  According to the weekly EIA oil stockpile report, US stockpiles actually decreased over the course of the week.  The decline was widely coupled with recent speculation surrounding another supply cut by OPEC members ahead of the December 14^th meeting.  As a result, crude oil contracts on the NYMEX were bid higher to trade near $62.81 a barrel in New York.

 

Asian Bloc – Singapore and Hong Kong

A rather empty economic day for both countries as proponents for the Asian currencies await the release of the monthly foreign currency reserves report.  Both are expected to continue to add to foreign currency reserves, reinforcing the healthy status of economic growth that has taken place over the past several months.  Last month, both figures rose to record highs, contributing to some notions of a mild pullback before further continuation in the figure.  Nonetheless, with higher hopes of continuation in the overnight, traders took the Singapore dollar higher.  Comparatively, the Hong Kong dollar was privy to some slight bidding in the early morning before profit taking and correlations with the mainland’s currency took the currency pair higher, bearish for the HKD.  Halted following a two day advance, the Chinese yuan weakened after policy makers reinforced a gradual strengthening of the domestic currency.  The statements countered speculation yesterday that officials would be contemplating increased flexibility ahead of US Treasury Secretary Paulson visit to Beijing.  To take place on December 14-15, Paulson will meet with Chinese officials, along with Federal Reserve Chairman Bernanke, in pushing for further change in the currency regime.  It is said that there is increasing pressure being placed on a quick shift as US exporters continue to express concern over competitiveness.  Either way, the statements, which quelled speculation, led the Hong Kong dollar slightly lower in the New York session, hitting previous support at 7.7710.

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