Emerging markets roundup
South African Rand
Strengthening for the second straight session, the USDZAR
currency pair ticked further below the 7.4000 figure on higher commodity prices,
with specific emphasis on climbing platinum prices. Gold contracts weren’t able
to contribute to the positive undertone as contracts on the COMEX division of
the New York Mercantile Exchange were lower on the day by $1.30 at $627.90 a
troy ounce before the close. Comparatively, platinum prices were higher in the
morning, hitting a session high of $1219.50 before paring back in afternoon
trading. Additionally boosting the underlying currency was further speculation
that yields in South African denominated assets would outpace US dollar based
investments in the near future. With the Federal Reserve on hiatus from the
recent spate of tightening, traders in the market are focusing on higher rates
of return especially in South Africa as the country’s central bank now offers
8.5 percent compared to a 5.25 percent in the world’s largest economy.
Subsequently, raising rates three times since June, Reserve Bank of South Africa
Governor Tito Mboweni has noted that upside risk continues to persist on the
potential for a rebound in crude oil contracts. Confirming statements last week
have spurred speculation that further rates hikes will likely be instituted in
keeping inflationary pressures in check. However, stocks weren’t affected by
rate speculation as miners and commodity producers led the charge on the FTSE/JSE
Africa All Share Index. Rising by a whopping 360.42, the index advanced to a
record to close at 23,950.99, now above 30 percent since the beginning of the
year. Sector stocks like Impala Platinum and Anglo Platinum lead commodity
stocks with both issues rising higher, boosting sentiment for the underlying
currency. This will all lead into the SACOB business confidence figure for
release tomorrow. Expected to still remain expansionary, the confidence survey
is estimated to continue its decline on fear of higher interest rates denting
overall corporate profits. Last month, the South Africa Chamber of Business
survey declined to 97 from a previous 99 as higher interest continued to
suppress confidence. The lower figure should provide for some intraday selling,
a potential opportunity for bids on dips.
Mexican Peso
Another sharp reversal took place in the Mexican Peso today
following a set of explosions that rocked Mexico City. Although damaging, the
bombs were quickly dismissed by investors as they seemed only to be planted in
an attempt to make a statement rather than cause harm. Destroying a bank branch,
the bombs additionally damaged the country’s federal election court and
headquarters of the Institutional Revolutionary Party. Nonetheless, the
explosions sparked concern over the environment that President-elect Felipe
Calderon will take over on December 1st, calling to question his ability to
fully govern the country. Subsequently, the morning’s debacle adds to current
tensions in the city state of Oaxaca which have purported clashes between police
and protestors over the called for resignation of the region’s governor. The
Mexican peso lost on the day, as a result, versus the US dollar, spiking above
the 10.85 figure before paring back below heading into the afternoon close.
Stocks were not as ill-effected following the blasts once the situation was
deemed as more of a statement than terrorism. The Mexican Bolsa index advanced
at the close by 437.67 points to 23,607.54. Equities remain higher by over 30
percent on the year as emerging markets continue to attract foreign investment.
Nordics — Swedish, Norway and Denmark
Unusually narrow, the Nordics were calm on the day as traders
awaited economic data from all three economies. More recently, the market is
expecting Norwegian PMI survey results this evening, which is estimated to
remain well supported as the economy continues to bolster record unemployment,
boosting spending, and upticks in manufacturing on increased orders. As a
result, expectations remain high of a rise on the previous report, showing a
print of 63.8 in the month of September. However, optimism maybe cut well short
as expectations loom of a pullback in overall industrial production.
Non-seasonally, the measure is estimated to have fallen from a 6.1 percent year
on year rate to a more tamed 4 percent. The results should counter the PMI
figure, adding to some NOK concerns. Subsequently, the sentiment should
disseminate into the industrial orders and production figures in Denmark.
However, potential remains for both to rise on the month over month as economic
fundamentals have boosted previous sentiment of a temporary pullback in
production. Positive results should give boost to the currency, reversing the
decline of 2.4 percent in August. Separately, budget data is slated for the
Swedish economy, not likely to move markets in the overnight.
Hong Kong Dollar
Considerably lower than the closing price on Friday, the Hong
Kong dollar dropped against the US dollar in line with a flurry of major Asian
currencies on the day that declined. Traders paring back bets on a rate cut in
the US squared some positioning in the basket of currencies monitored by the
People’s Bank of China. Including the yen and South Korean won, the selling
pressure leaked into the Hong Kong dollar market, sending the USDHKD currency
pair higher above the 7.7800 figure. No economic data was visibly protecting the
currency during the session with the only positive notions coming from the
benchmark stock market. For the fourth straight session, the benchmark Hang Seng
advanced to its fourth straight record close. Boosted by stocks in China Mobile
Ltd. and banking sector stocks, the index rose another 186.86 points to
18,936.55, its highest mark on record. With increases in bidding for Asian based
assets the market continues to have a lot of momentum behind it heading into the
end of the year. Taking a look ahead to tomorrow’s release, fundamental traders
are set to see the foreign currency reserves report. Expected to widen again,
the $130.3 billion figure is likely to do little for the underlying currency.
Singapore Dollar
Following in sync with the Hong Kong dollar, the underlying
Singapore currency was pressured contrary to the stock market’s reaction. Stocks
advanced in the region led by Singapore Telecommunications Ltd. as the phone
company was said to be close to starting a trial for Internet pay television in
the region. Shares were boosted by 2 cents to S$2.69, leading other shares
higher and lending some strength to a lower Straits Times Index. Reversing the
previous two day decline, the index added 6.82 points to 2,729.13 but added
little strength to the underlying currency. The Singapore dollar dropped for the
second day against the US dollar on broader Asian currency weakness, however,
remained below the current resistance level of 1.5650. Tomorrow’s foreign
reserves report may strengthen the Asian Tiger dollar as the economy is expected
to mount on last month’s release of $129.42 billion. The increase in reserves
boosted the credit rating issued to the economy as it bolsters a health
financial picture.
Kathy Lien is the Chief Currency Strategist at
Forex Capital Markets. Kathy is responsible for providing research and analysis
for DailyFX, including technical and fundamental research reports, market
commentaries and trading strategies. A seasoned FX analyst and trader, prior to
joining FXCM, Kathy was an Associate at JPMorgan Chase where she worked in Cross
Markets and Foreign Exchange Trading.