Mexican Peso eyes key 10.00 mark on attractive interest rate differentials, Turkish Lira gives up gains as political risks rise, Singapore Dollar weakens as CPI unexpectedly falls 0.3% in June, Hong Kong Dollar falters on Paulson’s comments and declining oil, South African Rand braces for volatility on next week's calendar.
South African Rand (ZAR) South African Rand Eyes Volatility on Next Week’s Calendar A virtually empty South African calendar saw USDZAR trading with broad US dollar sentiment. The greenback rallied as Financials sector earnings reports proved better than expected, Congress voted to give the Treasury authority to bail out Fannie Mae and Freddie Mac, and oil prices dropped. The pair bounced higher from long-term trend line support just below the 7.47 level to break a down-sloping resistance line that has cointained the upside since mid-June at 1.6139. The docket will become substantially busier in the week ahead. June’s Consumer Price Index and Producer Price Index are expectated to see annualized grwoth rates to rise 12.1% and 17.0%, respectively. This would put inflation at the highest levels since 2002. The central bank raised interest rates by 50bp for the sixth time this year in June on expectations that rising food and energy costs will mean above-target inflation until 2010. Expectations had called for a 100bp increase to put bottowing costs at 12.50%, which will likely materialize should CPI and PPI print as forecast. The bank is to meet again on August 14th. Business confidence has fallen for the past four months, dragged lower by political crisis in neighboring Zimbabwe and the spreading global economic slowdown. Zimbabwe’s president Robert Mugabe began talks with opposition leader Morgan Tsvangirai designed to arrange for power-sharing. A positive outcome may see Business Confidence improve in the coming months. The trade deficit is expected to widen to -4.8 billion rand in June having narrowed to a 5-month low of -1.7 bullion in May. The improvement was driven by a 27% drop in oil imports and rising precious metal exports. Gold rallied strongly in May and oil remained expensive, opening the door for another upside surprise. 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 Mexican Peso (MXN) Mexican Peso Tempts Key 10.00 Mark on Attractive Interest Rate Differentials The Mexican Peso shot to fresh multi-year highs against the US dollar, as persistent demand for its high yields made it the fastest-gaining major traded currency against a resurgent US dollar. Indeed, a sudden boost in demand for the US currency was not enough to overcome the level of international interest in MXN assets. Investment managers were reportedly drawn to Mexican fixed income assets; given the alternative of negative real interest rates in the US, it is perhaps little wonder that investors would park their funds in debt instruments with impressive real rates of return. Recent Mexican Consumer Price Index figures only reinforced the effect, as investors now predict with increased conviction that the Banco de Mexico will continue raising interest rates through the medium term. Widening US-Mexican rate differentials can only support further USDMXN declines, and indeed the spread between benchmark 2-year US and Mexican government bonds now stands at nearly 600 basis points. Whether or not this will be enough for traders to drive the USDMXN below the key 10.0000 mark is unclear, but momentum evidently rests on the Mexican Peso’s side. A relatively empty domestic calendar means that news-based volatility will be limited, and indeed USDMXN traders will likely look to US event risk for major moves in the North American currency pair. A packed US calendar includes critical Consumer Confidence, Gross Domestic Product, and the infamous Non Farm Payrolls reports in a short three-day stretch. Any significant surprises could easily force volatile moves in the US dollar and, by extension, in the USDMXN. Mexico – Event Risk For The Week Ahead USD/MXN Technical Resistance/Support Levels Written by David Rodríguez, Currency Analyst for DailyFX.com E-mail: drodriguez@dailyfx.com Turkish Lira (TRY) Turkish Lira Gives Up Gains As Political Risks Rise, Trade Data May Weigh Next Week The Turkish lira tumbled over the course of the past week, but with economic data out of the country limited, the move had more to do with a surge in the US dollar across the currency markets. The sole indicator released was the number of foreign visitor arrivals, which slowed to a 19.2 percent annualized pace in June, down from 20.2 percent in May. Nevertheless, this marked the 19th consecutive month of annualized growth, suggesting that income from tourism may help support the Turkish economy as export and domestic demand wanes. Highlighting the importance of foreign visitor arrivals, Turkey earned $18.5 billion from tourism in 2007, which was up 9.5 percent from a year earlier. However, political turmoil always remains a risk for not only tourism (as it can easily deter visitors) but also for the Turkish lira in general. This has most recently come in the form of the Chief Prosecutor’s efforts to have the ruling AKP shut down, as the Constitutional Court is currently debating the issue and is expected to finalize their decision within two weeks. When this decision is announced, the news is likely to be very market-moving for the USD/TRY pair. Looking ahead to next week, Turkey’s trade deficit is anticipated to widen during the month of June, as rocketing oil prices add to import costs. In fact, foreign demand for Turkish goods has actually been growing at a rather robust pace this year, as exports surged 37 percent in May to a record of $12.5 billion. Nonetheless, since Turkey is completely dependent on imports for energy, the country’s trade figures are at a particular disadvantage when crude oil is steadily hitting record highs. From a technical perspective, USD/TRY faces resistance at 1.2100, but a break above this level will likely go on to target the upper band of the falling channel formation and the 100 SMA near 1.2525 over the next few weeks. On the other hand, if near-term resistance holds, the pair may dip down toward 1.1768. Turkey – Event Risk For The Week Ahead USD/TRY Technical Resistance/Support Levels Written by Terri Belkas, Currency Analyst for DailyFX.com E-mail: tbelkas@dailyfx.com Singapore Dollar (SGD) Singapore Dollar Weakens As CPI Unexpectedly Falls 0.3% In June With inflation risk a primary focus across the financial markets as crude oil prices hold above $125/bbl, it was especially surprising to see CPI figures underperform expectations last week. The metric showed price growth held steady for the third consecutive month at an annual rate of 7.5 percent in June, versus expectations of a rise to 8.0 percent. Meanwhile, the monthly rate of growth actually contracted 0.3 percent, as a drop in clothing and housing prices helped offset gains in food and energy costs. The drop in CPI may be due primarily to a decline in import price inflation, as the Monetary Authority of Singapore decided in April to allow the Singapore dollar to appreciate at a faster rate versus the US dollar, making goods from abroad – such as oil – less expensive. The surprisingly weak CPI numbers led USD/SGD higher for a break of 1.36. However, multiple resistance points loom above, namely a falling trendline that dates back to late 2007, the 50 SMA at 1.3632 and the 100 SMA at 1.3670. 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. First, industrial production in the month of June is anticipated to rebound after contracting in May and June. With exports contributing significantly to Singapore’s economy, a strong output reading is likely to give a boost to the country’s currency. On the other hand, the unemployment rate is forecasted to edge slightly higher, but since consumer spending is also vital to expansion in Singapore, this news could be similarly market-moving. Singapore– Event Risk For The Week Ahead USD/SGD Technical Resistance/Support Levels Written by Terri Belkas, Currency Analyst for DailyFX.com E-mail: tbelkas@dailyfx.com Hong Kong Dollar (HKD) Hong Kong Dollar Falters on Paulson’s Comments and Declining Oil After a quiet start to the week the USDHKD spiked higher on easing oil prices and comments from Hank Paulson and Charles Plosser, which generated broad based bullish dollar sentiment. The U.S. Treasury Secretary called for a strong dollar while the Philadelphia Fed President said that interest rates should be raised. Those commenst and better than expected earnings results from some U.S. banks would generate risk appetite which overshadowed significant Hong Kong fundamental data. The country saw inflation rise in June to 6.1% from 5.7% the month prior on soaring food and energy prices. The 11.3% increase in food costs was followed by a Utilities and housing, which jumped 7.4% and 6.3% respectively. Meanwhile, exports fell 0.6% from a increase of 10.3% the month prior. The decline was the first in more than two years and severly missed expectations of a 9.3% gain. The slowing economic growth is expected to continue in the country as China and other Asian emerging markets start to see rising inflation curb consumer demand. Exports were already sinking on weak U.S. and Japanese orders which was being offset by robust Chinese demand. Indeed, Chinese exports fell 6.2% following a gain of 12.7% in May. Although the country is still expected to experience an expansion of 3.9%, it is below initial estimates of 4-5%. Next week’s calendar will bring retail sales which are expected to rebound to 13.4% following May’s 12.9% gain. The report has provided event risk in the past, but the modest gain may have little sway over price action. A quiet U.S. economic docket until our next report will leave the pair at the mercy of the risk winds and macro influences like oil. However, the looming NFP’s next Friday may start to provide Hong Kong dollar support, as the U.S. economy is expected to show another month of job losses in excess of 50,000. 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 To contact the authors with comments regarding this or other articles they have authored, please email them at research@dailyfx.com.