South African Rand gains on stronger-than-expected inflation data, narrowing trade deficit. Mexican Peso awaits key US employment report and Mexican CPI results. Turkish Lira rallies sharply as Turkish high court acquits ruling party. Singapore Dollar holds to range as greenback drives trading. Hong Kong Dollar falters on Paulson’s comments and declining oil.
South African Rand (ZAR)
South African Rand Gains On Stronger-Than-Expected Inflation Data, Narrowing Trade Deficit
The South African rand rallied for much of the week, just ahead of key inflation data as expectations of a strong reading mounted. Indeed, CPIX, which excludes mortgage costs, affirmed these forecasts as the figure jumped 11.6 percent in June from a year earlier, a marked acceleration from the 10.9 percent pace seen last month. This figure is well above the South African Reserve Bank’s inflation target range of 3 – 6 percent, which raises the risks that the central bank will be forced to consider hiking rates further. In fact, the SARB increased rates by 50 basis points to 12 percent as recently as June 12, marking the sixth rate hike in a year.
Like most of the world’s economies, South Africa is grappling with rocketing energy and food prices. However, CPIX has held above the SARB’s target range for over a year, which is creating concerns that inflation is spreading beyond these volatile commodities and into wage costs. On June 23, SARB Governor Tito Mboweni said further interest rate increases will be “painful,” but with price stability being the bank’s primary mandate, his statement certainly does not mean that additional rate hikes are out of the question.
Meanwhile, the South African trade deficit narrowed to 200 million rand in June from 1.7 billion rand, due to a 7 percent surge in exports of items like metals, minerals, and cars. It appears that the South African economy has yet to see any signs of a global economic slowdown, as demand for commodites remains robust.
Looking ahead to next week, the release of the Investec Purchasing Managers Index may continue to hold below 50 – signaling a contraction in business activity – which would suggest that rising interest rates and building inflation pressures are taking a hefty toll on the South African economy. Likewise, manufacturing production for the month of June could suffer, though the strong export figures for the same period suggests that there is a chance output actually picked up.
South Africa – Event Risk For The Week Ahead
USD/ZAR Technical Resistance/Support Levels
Written by Terri Belkas, Currency Analyst for DailyFX.com
E-mail: <[email protected]>
Mexican Peso (MXN)[B]
Mexican Peso Awaits Key US Employment Report and Mexican CPI Results[/B]
The Mexican Peso remained almost exactly unchanged against the US dollar through later-week trading, as largely indecisive currency trading markets showed little willingness to force major moves across all US dollar pairs. Given last week’s incredible 2000 point trading range in the USDMXN, many speculators simply stuck to the sidelines in hopes that markets would clarify probable direction in the North American currency pair. The prospect of significant US economic event risk likewise gave many traders pause; the notoriously unpredictable US Non Farm Payrolls report almost invariably forces major moves across US dollar pairs upon release.
The US economic calendar will likely continue to dominate headlines through next week’s trade, as a highly-anticipated US Federal Reserve Interest rate announcement will almost certainly force major price moves across broader financial markets. Global equity markets remain very much attuned to the US central bank’s interest rate policy, and any surprises or clear shifts in rhetoric could force major moves in the US dollar and major stock indices. Interest rate swaps predict an approximate 7 percent chance that the Fed will raise interest rates by 25 basis points—hardly a likely outcome. Yet such marginal uncertainty implies that we will see price volatility regardless of the outcome.
Not to be outdone, the Mexican economic calendar likewise poses event risk to the peso and domestic asset classes; a key Consumer Price Index report will likely clarify outlook for the future of Banco de Mexico interest rate policy. Many predict that Banxico will raise interest rates once more at their August 15th announcement date, but uncertainty surrounding such forecasts will make for volatile trade following the major CPI report. Median estimates for July CPI show expectations of a 5.34 percent annual inflation rate—a full 2.34 percent above Banxico’s target of a 3.00 percent rate. It is perhaps little surprise to note that officials have clearly voiced their concerns over price prospects and responded with two consecutive interest rate hikes. Whether the upcoming CPI data will be enough for a third-consecutive hike is the key question, however, and it will be important to watch market reaction to said release. Traders will likely await the outcome of aforementioned US and Mexican economic event risk to force major moves in the USDMXN.
[B]Mexico – Event Risk For The Week Ahead
USD/MXN Technical Resistance/Support Levels
[/B]
Written by David Rodríguez, Currency Analyst for DailyFX.com
E-mail: <[email protected]>
[B]Turkish Lira (TRY)
Turkish Lira Rallies Sharply As High Court Acquits Ruling Party[/B]
The Turkish Lira took traders for a wild ride this week. USDTRY had been trading in an orderly downward sloping channel established in early May until yesterday saw prices gap 195 pips lower at the open. The move reflected a sigh of relief as markets learned that Turkey’s Constitutional Court upheld the legality of the ruling AK Party. The country’s top prosecutor brought charges against the government of President Abdullah Gul and Prime Minister Recep Tayyip Ergodan, saying they violated Turkey’s strict secularism by introducing Islamic-tinged legislation. The high court ruled not to outlaw AKP by a narrow 7-6 majority. Had the vote gone the other way, the government would be forced to resign, creating a gaping power vacuum and clouding Turkey’s economic and political future in uncertainty. The markets’ reaction was overwhelmingly positive: the Istanbul bourse added nearly 8% and the Lira rallied gained across the board.
The economic docket offered the singular release of the June’s Trade Balance. The metric underperformed as the trade deficit printed at -7.7 billion versus -6.9 billion expected. Rising energy prices inflated import volume figures as Turkey imports 95% of the oil and natural gas that it consumes. Ironically, the recent increase in demand for Turkish exports has also pushed imports higher because firms rely on overseas suppliers for the intermediate goods used in production.
Looking ahead, next week’s calendar features a wealth of market-moving data releases. Tomorrow will likely bring further deterioration in business sentiment with July’s Manufacturing PMI inching further below the 50 “boom-bust” level having issued a reading at 48.9 in the preceding month. Sentiment has suffered as high energy prices have pushed production costs higher. Consumer prices are expected to print at 11.8% in the year to July, the highest since 2004. Producer Prices are expected to set a new record high of 17.4% in the year to July. The central bank raised interest rates 50 basis points to bring benchmark borrowing costs to 16.75%. The accompanying statement noted that policymakers saw the new level as “supportive of disinflation”, but left the door open to further tightening by saying that “ongoing uncertainties and supply side shocks continue to pose risks on inflation. The Central Bank will consider a further measured rate hike when needed, so as to prevent the potential second-round effects of such risk factors.” Industrial Production will likely remain subdued in June having printed at a yearly low of 2.4% in May. Production suffered as domestic demand slumped to an all-time low in May when prosecutors challenged the legality of the ruling AK Party. AKP’s pro-business policies are credited with presiding over record-setting economic expansion since taking power in 2002. On balance, the release will likely go unnoticed as traders expect improvement in consumer confidence to lift industrial production following today’s High Court decision to acquit the AKP.
[B]Turkey – Event Risk For The Week Ahead
USD/TRY Technical Resistance/Support Levels
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Written by Ilya Spivak, Currency Analyst for DailyFX.com
E-mail: <[email protected]>
[B]Singapore Dollar (SGD)
Singapore Dollar Holds To Range As Greenback Drives Trading[/B]
The Singapore dollar eased lower over the course of the week, helping to keep USD/SGD within its recent range of 1.3450 – 1.3800 as a lack of market-moving data kept the greenback in the driver’s seat. Nevertheless, it is worth noting Singapore labor market indicators. While the economy added on an additional 70,600 workers during Q2 following a record gain of 73,200 in Q1, the jobless rate actually rose more than expected to 2.3 percent in Q2 from 2 percent. However, this was due primarily to there being a greater number of people seeking work. The services and construction sectors were responsible for the majority of the hiring, suggesting that robust consumer spending and an increase in building activity are leaving firms strapped for workers.
Nevertheless, with the US dollar remaining strong across the currency markets, USD/SGD simply crept higher. In recent days, though, the pair has run into resistance at 1.3700. While a break of this level is entirely possible, USD/SGD will also face resistance at 1.3800, which marks the top of the multi-month range.
Given these heavy resistance points, it will take either a surge in the US dollar across the currency markets or a bout of very weak economic data out of Singapore to push USD/SGD significantly higher. However, upcoming event risk may not have a large impact and could leave USD/SGD to continue trending lower since next week will only see the releases of July’s PMI and Electronics Sector Index data. Expectations call for the former to drop below the 50 boom/bust level, while the latter should hold just high enough to signal expansion in the sector. However, given the strong industrial production numbers released on July 25, there is some upside risk for these reports and thus, bullish potential for the Singapore dollar.
[B]Singapore– Event Risk For The Week Ahead
USD/SGD Technical Resistance/Support Levels[/B]
Written by Terri Belkas, Currency Analyst for DailyFX.com
E-mail: <[email protected]>
[B]Hong Kong Dollar (HKD)
Hong Kong Dollar Falters on Paulson’s Comments and Declining Oil[/B]
Easing oil prices, better than expected earnings from U.S. banks and the announcement of a stock issue by Merril Lynch led to the Hong Kong Dollar weakeniong throughout the week against the greenback. The USDHKD would rise above the peg surpassing the 7.8030 price level for th efirst time since July 14. Increased risk appetite would see flows leave the safety of the pair as the worst of the credit crisis appeared to be over when beleugered financiial sevrices company Merril Lynch announced a $8 billion stock issue. Oil prices continuing their recent decline also boosted the attractiveness of stocks and push indexes higher.
Hong Kong retail sales slowed to 11.6% from a revised 13% the month prior. Consumer durable goods orders slowed for a fourth straight month while motor vehicle purchases fell 7.3%. Consumer are battling increasing food prices and rising energy costs which has sunk consumer confidence to the lowest levels in 3 ½ years. If oil prices continue to ease consumption may see a significant increase with the country’s unemployment rate at a decade low.
The Hong Kong Dollar started to strengthen as the U.S. GDP report printed weaker than expected. Therefore, with the upcoming NFP report expected to show more job losses for the U.S. economy, an increase in risk aversion is highly likely which could send the pair back below the peg. The only release scheduled for the upcoming week is the second tier indicator of the foreign currency reserves which will have minimal impact on price action.
[B]Hong Kong – Event Risk For The Week Ahead
USD/HKD Technical Resistance/Support Levels[/B]
[I]Written by John Rivera, Currency Analyst for DailyFX.com
E-mail: <[email protected]>
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