South African Rand to gain as forex markets correct from the spike in dollar strength. Technical positioning favors near-term Turkish Lira strength. Singapore trades choppy as MAS intervention suspected. The Hong Kong Dollar continues its slide against the greenback.
South African Rand (ZAR)
South African Rand to Gain As Forex Markets Correct From the Spike in Dollar Strength
Last week was a busy one for South African fundamental data. Consumer Prices printed higher, but less so than expected. The annualized figure registered at 13.4% in July versus 13.6% forecast and 12.2% in the preceding month. Still, the reading was the highest on record since the government began collecting data for the index in 1998. Producer Prices surged dramatically, printing at 18.9% in July versus 17.5% expected and 16.8% in June, the highest level in 22 years. The upticks came as Eskom Holdings Ltd, the state-owned power utility company, began to implement a 27.5% electricity price increase. The increase is designed to fund an expansion project to eventually boost supply following outages at gold and palladium mines in January.
That said, the inflation outlook is expected to see prices moderate “significantly” as food and oil prices continue lower, according to central bank Governor Tito Mboweni. Indeed, crude oil prices have fallen over 20% in the past two months while food prices (as measured by the CMCI index) have eased over 12%. Bond yield forecasts see the market pricing in steady interest rates at 12% in the near term, with a 25 basis point rate cut on tap I nthe second quarter of next year.
Unemployement improved in June, falling to 23.1% from 23.5% in the previous month. The positive reading comes as the economic growth corrected higher in the second quarter, with GDP expanding 4.9% versus just 2.1% in the first three months of the year. Growth was held back by the aforementioned power outages at key mines in the first quarter and rebounded as the issue was resolved. Still, bringing the gold and palladium export appratus back online did not help bolster outbound shipments enough to avoid a record -14.3 billion Rand trade deficit in July, the second-worst reading on record. The profound deterioration owed to a hefty import bill, driven primarily by dearer oil. The metric is set to deteriorate further in the coming months as the government preprates to spend 568 billion rand over the next three years on projects to prepare Africa’s largest economy to host the 2010 FIFA World Cup.
Looking ahead, the Investec Purchasing Manager’s Index may see some improvement in August as oil prices moderate and higher elecricity costs are priced in. Vehicle Sales may also see a bit of improvement on lower petrol prices having seen double-digit declines in recent months. The current account will likely mirror the steep deterioration seen in the Trade Balance, with the capital side of the equation unlikely to make up for the trade shortfall as investors are leery of risky markets ahead of the looming global slowdown.
Technically speaking, USDZAR price action as seen some retracement of recent dollar strengh to find support near 7.6910, the confiuece of the 50-day and 100-day moving averages as well as the 38.2% Fibonacci retracement of the 08/04-08/15 rally. The pair broke past major support in early August and looks poised for further US dollar gains following the downward correction.
South Africa – Event Risk For The Week Ahead
USD/ZAR Technical Resistance/Support Levels
Written by Ilya Spivak, Currency Analyst for DailyFX.com
E-mail: ispivak@dailyfx.com
Turkish Lira (TRY)
Technical Positioning Favors Near-Term Turkish Lira Strength
The technical perspective suggests the Turkish Lira will gain ground against the dollar in the near term. USDTRY spent last week trading sideways below resistance at the 23.6% Fibonacci retracement of the 04/01-08/04 decline at 1.1960. To days ago, price action yielded an Inverted Hammer bearish candlestick reversal signal at the intersection of Fib resistance and the upper boundary of a downward-sloping channel that has market price action since April. A selloff from current levels looks to support near 1.1500 near August monthly lows.
Looking at the fundamentals, last week saw annualized Tourist Arrivals slow to 12.7% in July versus 19.2% in the preceding period. Leisure spending has declined worldwide as consumers weigh up slowing global growth prospects. The trade deficit widened, yielding a shortfall of -8.0 billion Lira in July versus -7.5 billion expected and -7.7 billion in the preceding month. The deterioration was driven by higher energy costs, which bid up import volumes. Turkey imports about 95% of all of its oil and gas so the economy is highly sensitive to changes in global energy prices.
The week ahead brings a heavy calendar, with traders likely focused on Augusts’ producer and consumer inflation metrics. Expectations call for both indices to decline as headline inflation begins to reflect the over-20% drop in crude oil prices that started in July. In comment issued last week, the central bank said that they expect a “gradual decline” in the price level and promised to focus more on economic growth. The economy may see hit substantial headwinds in the second half of the year as the global slowdown holds back demand from Turkey’s key European trading partners. Bond yield forecasts see the market pricing in no change interest rates into the end of this year, with a 50 basis point rate cut by the first quarter of 2009.
Turkey – Event Risk For The Week Ahead
USD/TRY Technical Resistance/Support Levels
Written by Ilya Spivak, Currency Analyst for DailyFX.com
E-mail: ispivak@dailyfx.com
Singapore Dollar (SGD)
Singapore Trades Choppy As MAS Intervention Suspected
The Singapore dollar weakened through the earlier part of the week on the back of dollar bullish momentum, easing inflation and slumping industrial production. The USDSGD would eventually run into resistance at 1.4275 and bearish dollar sentiment would send it down at as low as 1.4128. Consumer prices slowed in July for the first time in five months falling to 6.5% from 7.5% the month prior. Meanwhile, industrial production dropped the most in at least two years in July falling 1.8% and 21.9% on a year over year basis.
Easing inflation will allow the MAS to continue its efforts to devalue the currency as it attempts to make the countries exports more attractive. The fall in prices was led by declining costs for food and transportation. The central bank was receiving pressure to allow their currency to appreciate in order to tame inflation. The IMF recently called for policy makers to take measures to appreciate the local currency. The drop in industrial production justifies the attempts to suppress the Singapore dollar’s value as demand from the U.S. and Asian continues to weaken. A drop in production of pharmaceuticals and petroleum products offset gains in electronics.
The upcoming economic calendar will provide event risk in the form of the Purchasing Manger’s Index which is expected to decline to 50.8 from 51.6 underlining the government’s concerns regarding growth. The reading could potentially slip into contraction which would heighten growth concerns. The event risk for the U.S. side is very significant with manufacturing and service data on tap.
Singapore– Event Risk For The Week Ahead
USD/SGD Technical Resistance/Support Levels
Written by John Rivera, Currency Analyst for DailyFX.com
E-mail: jrivera@dailyfx.com
Hong Kong Dollar (HKD)
Hong Kong Dollar Continues Slide Against Greenback
The Hong Kong dollar traded in a tight range between 7.8060-7.8090 for most of the week, as it consolidates above trend line support. The lack of volatility was surprising giving the fluctuations in the dollar and risk appetite throughout the week. The only event risk provided by the economic calendar was the trade balance report, which showed tr country’s deficit shrinking import growth outpaced exports. Nevertheless, July’s 11.1% increase in exports from a year earlier was a significant rebound from last month’s first drop in more than two years.
“Despite the strong export performance in July, the outlook in the rest of the year continues to be clouded by uncertainties in the global economic environment”, the government said in a statement. As demand for Chinese goods fades as the Yuan appreciates it will continue to be a dragging influence on the Hong Kong economy.
The July retail sales and PMI reports will provide some event risk for the pair. Consumer consumption is expected to slow to 11.0% from 11.6% the month prior, which would be the fourth consecutive month of declining sales. Consumer confidence at a 3 ½ year low and rising inflation has curbed demand. The slowing domestic growth combined with slowing demand from abroad has accelerated the decline in the economy. The U.S. calendar will also provide event risk in the form of ISM manufacturing and non-manufacturing readings, as well as the NFP report at the end of the week.
Hong Kong – Event Risk For The Week Ahead
USD/HKD Technical Resistance/Support Levels
Written by John Rivera, Currency Analyst for DailyFX.com
E-mail: jrivera@dailyfx.com
Forex Emerging Markets Weekly - August 29, 2008
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