Forex Emerging Markets Weekly - August 15, 2008

Published August 15th, 2008 - 07:04 GMT

The South African Rand fell to a one-month low as the South African Reserve Bank left interest rates at a five-year high of 12%. The Mexican Peso uptrend hangs in the balance ahead of key a Banxico rate announcement. The Turkish Lira was unmoved as the central bank kept interest rates at 16.75%. The Singapore Dollar held to a range as the greenback drove trading. The Hong Kong Dollar continued to slide lower.

South African Rand (ZAR)

South African Rand Falls To One-Month Low As SARB Leaves Rates At Five-Year High of 12%
The South African Rand pulled back over the course of the week on the back of a drop in gold and a surge in the greenback, while a significantly less hawkish statement by the South African Reserve Bank (SARB) only provided a slight boost to the national currency. Indeed, as of August 14, gold futures were down for 9 of the previous 10 trading days, weighing on the commodity-sensititive Rand.

Meanwhile, like most of the world’s economies, South Africa is grappling with rocketing energy and food prices. However, the SARB still opted to leave rates at a five-year high of 12 percent when they met this past week, folliwing six rate hikes over the past year. In the Bank’s policy statement, the Committee said that there were “clear signs that the economy is responding to the less accommodative monetary policy stance,” such as the drop in South African retail sales for the fourth consecutive month in June. Furthermore, though the SARB revised their inflation forecasts for Q3 to 13 percent from 12 percent, the Committee said that prices pressures would ease “significantly” in Q1 2009, which they see being “partly as a result of the reweighting and rebasing effects.” Overall, the SARB’s policy statement suggests that the central bank will opt to leave rates unchanged for the remainder of the year, unless CPI breaches the 13 percent forecast within the next quarter.

Looking ahead to next week, the only notable release will be Q2 GDP, which is expected to rebound to an annualized rate of 4.6 percent from 2.1 percent in Q1. Given the broad decline in consumer spending, there is some downside risk for this release and thus, additional downside potential for the South African rand. Looking at the daily USD/ZAR charts, resistance looms for the pair at the 78.6 percent fib of 8.1780 – 7.1830 at 7.9440 and the psychologically important 8.0000 mark, all of which may limit upside moves for the pair. Nevertheless, if the US dollar rally persists and gold prices ease further, USD/ZAR could quickly return to the June highs of 8.1780. On the other hand, surprisingly strong South African GDP readings and a jump in gold could lead the pair below support at the confluence of the 100 SMA and 50 SMA at 7.77290/414.

South Africa – Event Risk For The Week Ahead

USD/ZAR Technical Resistance/Support Levels

Written by Terri Belkas, Currency Analyst for

Mexican Peso (MXN)

Mexican Peso Uptrend Hangs in Balance Ahead of Key Banxico Rate Announcement

The Mexican Peso remained largely unchanged through the past week of trade, as many speculators were reluctant to force major price moves ahead of what is likely to be a market-moving Banco de Mexico interest rate announcement. 21 of 28 analysts and economists polled by Bloomberg News said that they expect Banxico to raise interest rates by at least 25 basis points through tomorrow’s announcement, but the lack of crystal-clear consensus suggests that we may see MXN volatility regardless of the outcome. Recent Mexican Consumer Price Index numbers reinforce the belief that the inflation-targetting central bank will have to raise interest rates in order to control elevated price pressures, and the prospect of higher yields should continue to boost demand for the Mexican Peso.

Already we see that speculators have been unwilling to push the USDMXN beyond key resistance levels at its 50-day moving average and the 61.8 percent Fibonacci retracement of the 10.423-9.849 decline at 10.22. A hold of this key technical level would imply that the MXN’s bullish trend remains intact, and we could see the USDMXN resume its descent to 10.00 and beyond. Whether or not the MXN is able to stay below 10.00 will largely depend on Banxico’s rate announcement and the attached statement. If the bank raises rates but shows little willingness to continue on its tightening cycle, we may see any USDMXN declines cut short.

Mexico – Event Risk For The Week Ahead

USD/MXN Technical Resistance/Support Levels

Written by David Rodriguez, Currency Analyst for

Turkish Lira (TRY)

Turkish Lira Unmoved As Central Bank Keeps Interest Rates at 16.75%.

The Turkish Lira lost ground last week as the US Dollar rallied sharply across the spectrum of currencies. Disappointing economic data compounded the Lira’s troubles. Industrial Production printed sharply to the downside, yielding 0.8% in the year to June versus expectations of 2.5%. Higher oil prices were a key contributor, as was increasingly tepid demand from European consumers: four of Turkey’s top five export markets are members of the European Union. The Current Account deficit widened more than expected, registering a shortfall of -5.6 billion in June versus -5.0 billion expected and a revised -4.7 billion in May. Energy prices were the culprit here as well, inflating import volume metrics. On the capital side of the Current Account equation, the risk aversion associated with the global credit crunch has seen apprehension from investors, depriving Turkey of the capital inflow needed to balance the gap between imports and exports.

Slowing growth and the over-20% drop in oil prices through July saw Turkey’s central bank opting to keep borrowing costs unchanged at 16.75% having raised the benchmark rate 150 basis points from May to July. In a statement accompanying the decision, the monetary authority said that oil and other commodity prices are now “significantly below” original expectations. The Lira did not offer a strong response to the policy decision, with USDTRY price action confined to the same downward sloping channel it has occupied since March.

Looking ahead, Unemployment may reverse four consecutive months of decline as companies respond to the impact of lagging global demand. Latest Retail Sales from Turkey’s top European trading partners reveals sharp drops in key products such as apparel and textiles. The Euro Zone economy shrank -0.2% in the second quarter, the first negative reading in the currency bloc’s history. With most leading indicators deeply in the red, demand for Turkish exports will remain weak in the near to medium term. This will put pressure on the labor market, pushing up unemployment. On the bright side, Consumer Confidence will likely rebound from June lows. The metric had collapsed after Turkey’s chief prosecutor formally questioned the legality of the ruling AK Party. The country’s high court dismissed the charge by a narrow 7-6 vote in late July, avoiding a political crisis. That said, the boost may not be lasting as the economy is held back by global slowdown.

Turkey – Event Risk For The Week Ahead

USD/TRY Technical Resistance/Support Levels

Written by Ilya Spivak, Currency Analyst for

Singapore Dollar (SGD)

Singapore Dollar Holds To Range As Greenback Drives Trading

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.

Singapore– Event Risk For The Week Ahead

USD/SGD Technical Resistance/Support Levels

Written by John Rivera, Currency Analyst for

Hong Kong Dollar (HKD)

Hong Kong Dollar Continues Slide Against Greenback

The Hong Kong dollar like most currencies weakened against the dollar during the past week. The greenback has strengthened against most major currencies ever since ECB President Trichet lower expectations for European growth. The currency was also weighed down by the Hang Seng Index trading lower on concerns oveer regional weakness. The USDHKD would gain over a 100 points rising from 7.8044 to 7.8148 before it weakened on the reemergence of credit market concerns.

The $1.5 Billion loss announced by JP Morgan Chase Co on mortgage-related investments would spark risk aversion. The finacial service company to this point had been relatively untouched by the subprime crisis compared to its competitors. Therefore, the size of the loss raised concerns that there could be further fallout.

The Hong Kong ecnomic calendar is full with significant fundamental data. The quarterly GDP report is expected to show growth slowing from 1.8% to 1.2% as global demand weakens. The ecnonomy saw a 4.4% decline in manufacturing during the first quarter and conditions have worsened since, with European and Asian economies experiencing a steep decline in growth. Oil prices record pace has sapped purchasing power and squeezed margins worldwide. Unemployment is also expected to rise from a decade low of 2.6% to 2.7% which could weigh on domestic growth. Neverthelees, the pair will typically influenced by risk winds and U.S. event risk .

Hong Kong – Event Risk For The Week Ahead

USD/HKD Technical Resistance/Support Levels

Written by John Rivera, Currency Analyst for

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