Emerging market currencies saw a mixed results against the US dollar last week, with the Turkish Lira a notable standout. Indeed, the Lira was one of the top performers against the greenback across the forex market as the central bank opted to keep interest rates unchanged at 16.75%, the highest of any major economy.
Turkish Lira Soars Against the US Dollar
Emerging market currencies saw a mixed results against the US dollar last week, with the Turkish Lira a notable standout. Indeed, the Lira was one of the top performers against the greenback across the forex market as the central bank opted to keep interest rates unchanged at 16.75%, the highest of any major economy. The Lira had been badly battered as risk aversion outlow from high-yielding currencies saw the currency fall over 3% on news of the bankruptcy of Lehman Brothers. The central bank opted to keep rates unchanged to offer some support and apparently succeeded. Still, monetary authorities appear to have an overall bearish bias, saying they will consider “measured rate cuts” if commodity prices remain subdued and global credit market turmoil begins to ease. The Mexican Peso, South African Rand, as well as the Singapore and Hong Kong Dollars were little changed. The currencies managed to score modest gains against the dollar as the greenback retraced its break-beck rally from mid-July but failed to gain substantial momentum with investors leery of committing to risky assets given current turmoil.
Mexican Peso – The economic calendar is virtually bare, with the July edition of the Global Economic Indicator IGAE the only meaningful item on the docket. The metric, a leading indicator for GDP, is expected at 2.1% versus 1.1% in the preceding month. Economic indicators have remained resilient for the southernmost North American nation: Retail Sales overshot expectations to print at 2.9% in July (vs. 1.9% expected) while the Unemployment Rate printed at 4.15% in August (vs. 4.20% expected). Still, the central bank opted to keep rates unchanged at 8.25% in a September 19th policy meeting, saying economic growth may slow all the while inflation is expected in line with forecasts. Policymakers hiked rates three consecutive times in preceding meetings.
Turkish Lira – The trade deficit is expected to narrow in August, printing at -7.5 billion versus -8.0 billion in the preceding month. The impovement will likely come courtesy of lower import volumes on falling commodity prices. Turkey relies on external suppliers for the overwhelming majority of its energy needs and a sharp decline in crude oil is sure to be reflected. That said, sagging outbound shipments may undermine the metric and leave room for a downside surprise as consumer demand dwindles among Turkey’s European export partners.
South African Rand – Trade data is in focus for South Africa next week as the trade deficit is expected to narrow to -4.9 billion rand in August from -14.3 billion in the preceding month. Similar to Turkey, the dramatic improvement will be owed to a smaller import bill courtesy of sharply lower crude oil prices. Indeed, crude lost 6.9% in August and is down nearly 28% to date since the peak at over $147/barrel in mid-July. Investec PMI is likely to remain in contractionary territory: the prices of South Africa’s key metal exports dropped nearly 6% this month alone and slowing global demand is likely to keep them under pressure in the near term.
Singapore Dollar, Hong Kong Dollar – Between them, Hong Kong’s PMI figure is the only significant item on the docket for the coming week. The figure is likely to remain in contractionary territory on sagging global demand. Hong Kong is a major trading hub for China, and cutbacks in consumer spending saw exports passing out of Hong Kong dwindle to 1.9% in August from 11.1% in July. Domestic demand has also slowed dramatically, as reflective in imports growing just 1.5% in August versus 15.4% in the preceding month. Indeed, the economy grew by just 4.2% in the second quarter, the slowest in 5 years. With little else to derail price action other than HK PMI, the Singapore and Hong Kong dollars are likely to fall in with US dollar price action.
To contact Ilya regarding this or other articles he has authored, please email him at ispivak@dailyfx.com.
Forex Emerging Markets Summary - September 26, 2008
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