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South African Rand Loses As Current Account Improves

Friday, 08 December 2006 20:54:17 GMT  |  Richard Lee, Emerging Market Specialist

• South African Rand – South African Rand Loses As Current Account Improves
• Mexican Peso – Mexican Central Bank Leaves Rates Unchanged At 7
• Asian Bloc – Currencies Lose On Dwindling Speculation Of Rate Change

South African Rand
Some liquidation kept the South African rand slightly lower on the session as economic data garnered mixed results ahead of the weekend.  Released on the session was the current account balance for the third quarter.  Surprising some in the consensus, the figure was less than expected for the quarter, vastly lower than the consensus, with some even pitting a close on the 24-year high seen last month. Shrinking to a 90.5 billion rand shortfall, the report was also revised lower in the previous reading, taking the deficit from 101.7 billion to 95.3 billion in the prior quarter.  Subsequently, the equivalence to overall gross domestic product additionally narrowed to a lower 5.2 percent.  Both merchandise measures increased in the month.  However, with exports rising far more than imports, the current figure may be signaling a downturn in the amount of imports being consumed domestically as rates have steadily increased since the summer.  Either way, the report does bode well for the economy as it alleviates some fears, albeit temporarily, of an overheating economy filled with rampant consumption.  As a result, the currency pair has found considerable support just above the 7.000 figure lending to an upward bias before the weekend close.

Mexican Peso
The peso reversed yesterday’s losses amid a central bank decision that was widely priced into the market.  During the session, Banco de Mexico officials decided to keep interest rates at a two year low for the eighth month running as consumer prices remain under control.  According to yesterday’s report, inflationary pressures remain on the decline, rising to only 4.09 percent in the month versus a previous measure of 4.29 percent.  With commodity prices on the level and agricultural price pullbacks in the month, policy makers continue to forecast lower prices in the coming year.  Coupled with revised lower growth figures, subsequently, the consensus is now anticipating a potential rate cut in the first quarter of the new year in order to boost some time of spending domestically.  The move to cut rates would also continue the recent spate of cuts in over the past year with some futures bets pricing in a likely move to 6.25 percent by the end of 2007.  Nonetheless, the Peso was strengthened as the employment report noted a slight pullback in wage costs, reflective of lower inflationary pressures.

Asian Bloc – Singapore and Hong Kong
Lots of weakness for the Asian bloc currencies on the day as profit taking and some speculated anti-dollar liquidation led both the Singapore and Hong Kong dollars lower in New York.  After finding consolidation at the 7.7700 figure the Hong Kong dollar has pulled back to test the 7.7750 figure with the Singapore dollar roaring back above the nine-year low of 1.5400.  Coupled with capital flows to the dollar long side, news released in the overnight lent to some Asian bloc weakness as it became increasingly apparent that previous speculation over a possible widening of the band was misleading.  Previously, the market had been expecting a potential widening of the band as Chinese officials anticipate the arrival of US Treasury Secretary Paulson and Federal Reserve Chairman Ben Bernanke next week.  With the focus being the increased flexibility of the Chinese domestic currency, consensus had expected a little more flexibility in order to appease one of the mainland’s largest trade partners.  However, as always, policy officials are unlikely to comply with speculation as leaders remain steadfast on maintaining a stable underlying currency, and subsequent trade advantage.  Moreover, last night, although recognizing the likelihood of a widened band, Tang Xu, head of research at the central bank answered a strong affirmation of no such policy augmentation to Xinhua Finance Ltd.

 

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