Steady Government Continues To Support Mexican Peso

South African Rand

The rand strengthened on the session versus the US dollar following a double dosage of confidence that was positive for the month.  The first survey published by the Bureau for Economic Research noted manufacturing confidence surged to an 11-year high as the widely watched SACOB (South African Chamber of Business) survey vaulted to a record reading in the month.  Rising to 103.2 last month, the SACOB report saw increases in business sentiment as consumer spending and manufacturing remains robust in the economy.  The high level of productivity is forecasted to add to rising expansion in the South African country, already expanding at a 4.7 percent annualized rate in the third quarter.  This is now the seventh consecutive quarter of growth above 4 percent, as the notion is likely to boost speculation ahead of this week’s central bank announcement this week.  Subsequently, consensus is growing that policy makers will lean towards the likelihood that rates will be raised by another 50 basis points later this week as Governor Mboweni grows increasingly concerned over the credit crunch that is fitting the bill for heightened consumer demand.  The concern is well warranted as strong consumer spending levels have not abated following a recent string of rate hikes in the past couple of months, especially when taking into consideration consumer credit spending.  The credit, a report released earlier, surged to a record 27.5 percent in the month of October as regional consumption was boosted by higher employment prospects.  Ultimately, in order to curb further spending, and the likelihood of advancing inflationary pressures, policy makers will likely opt for further tightening even if the bias continues into 2007.  For now speculation on that theme is supportive of the rand which continues to test resistance just below the even 7.0000 handle for the second straight session. 

Mexican Peso

Continuing along with yesterday’s momentum, the Mexican peso further gained against the US dollar as speculators mounted on the sentiment that situations should improve as President Calderon was sworn in last week.  Granted the conditions of the swearing in were less than exemplary, but the nonetheless, the incumbent now sits comfortably at the head of the government.  The notion lent strength to the bulls on the day as the bidders for the underlying tested 10.90 figure and won.  Now currently trading at 10.86, speculation is setting sites on a move to 10.80 on continuing momentum.  However, countering the optimism on the day was the region’s consumer confidence report.  Released for the month of November and by the National Institute of Statistics, the report fell to the lowest level since November 2005.  Printing a 106.8, however, the survey continues to be reflective of better times in the Mexican economy as crude oil continues to assist in boosting government revenues and supporting the country’s exporting sector.  Current condition assessments did fall, nonetheless, to 105.5 from a 109.3 in the month of October.  The future conditions sub-index fared better, remaining above the 110 level and rising incrementally to 110.8.  The sub-index has now advanced for the third straight month, indicative of happier expectations.

Nordics – Swedish, Norway and Denmark

With no economic data scheduled, profit taking continued to ensue in both the Swedish Krona and the Danish Krone, lending to a dollar biased day.  However, fortunes smiled on the Norwegian economy as both the manufacturing survey and gross domestic product report ended higher for their respective periods.  First and foremost, Norwegian manufacturing activity was supported in the month, helping the survey print a reading of 61.1.  Although slightly lower than the 61.8 seen last month, the figure remains consistently within the area of the prior report, helping to underpin the idea that sector growth continues.  The aforementioned notion contributes to the overall growth of the country, reflected in the economy’s third quarter expansion figure.  Although somewhat hampered by a stoppage in oil production, overall productivity in Norway rose more than expected, vaulting higher by 1.3 percent in the quarter.  However, some weakness was witnessed as the mainland figure, which excludes oil and shipping fluctuations, dipped to 0.9 percent.  A silver lining, however, the incremental decline was amid a labor shortage that left some producers cutting back on production as new orders were unable to be met in the quarter.  Subsequently, the shortage has been reflected in a tight labor market report pitting the unemployment rate at a record 2.1 percent, sparking fears that wage inflation may be looming quite close.  On this reason alone, speculation is likely to continue ahead of the December 13^th meeting where central bankers are expected to raise another 25 basis points in attempting to remain preemptive, likely spelling near term strength for the underlying currency.

Asian Bloc – Singapore and Hong Kong

The Hong Kong dollar gained against the US dollar for the third straight session as the Singapore dollar met with some harsh resistance in the overnight, lending to speculation of further central bank intervention.  Already breaking through a nine year high, central bank intervention has been spotted in recent days for the Singapore dollar as concern over the recent appreciation has kept policy makers displeased with the possibility of rising inflationary pressures.  Nonetheless, strength was seen in both currencies early on, based widely on an appreciating Yuan in mainland China.  Rising to the highest close since the end of the dollar peg, the Chinese Yuan rose on speculation that government officials may allow the currency a little more flexibility ahead of Paulson visit to the country.  Expected to arrive next week, the US Treasury Secretary is schedule to visit and meet with officials on December 14^th and the 15^th.  The meeting, which will include the presence of Federal Reserve Chairman Ben S. Bernanke, is speculated to push for further flexibility once again as the Yuan continues to rise to considerable levels.  Sparking the discussion has been the continually widening trade deficit with the US, which widened to a record $23 billion in the month of September.  Subsequently, the economy’s trade surplus soared to an all time high of $23.8 billion in the month according to customs officials.  The bias in speculation has turned some investors to take to proxy trades, especially in the Hong Kong and Singapore economies, that are already mounting on the positive economic figures presented as of late.  Ultimately, the momentum is likely to spur advances in both against the US dollar in the near term and throughout until the actual visit.