Check out our fundamental and technical outlook on emerging market currencies, including the Mexican peso (MXN), Turkish lira (TRY), South African rand (ZAR), and Singapore dollar (SGD).
US DOLLAR / MEXICAN PESO
| | Fundamental Outlook: Mexican peso price action has had little to do with fundamentals, as the currency’s latest gains came off the back of a broad US dollar sell-off and general improvement in investor sentiment. Nevertheless, the Banco de Mexico’s March 20 rate decision could impact trade in the near-term, as they are expected to cut rates for the third consecutive meeting by 25 basis points to 7.25%, the lowest since 2007. As usual, though, the only way the rate decision will have much of an impact on the peso is if the central bank issues a statement that signals either a dovish (bearish for MXN) or neutral (bullish for MXN) bias. | | Technical Outlook: In the process of violent drop from the 15.60 historic highs. The 100-Day SMA has been broken by 13.90 and it will be interesting to see the reaction from here. Daily studies are approaching oversold (-10% MTD), and we would expect to see some form of a bounce. We have gone long at 14.00 in anticipation of this bounce. |
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US DOLLAR / TURKISH LIRA
| | Fundamental Outlook: On March 19 the Central Bank of the Republic of Turkey (CBRT) cut rates in line with expectations by 100 basis points to a record low of 10.50%, marking their fifth straight reduction. While the Turkish lira didn’t show much of a response to the data, the CBRT’s subsequent policy statement leaves the odds in favor of further declines in the currency as they indicated that they may cut rates further. Of course, traders should also keep risk trends in mind as well, as the high-yielding Turkish lira could be subject to sharp declines on pickups in risk aversion, and significant gains on heightened investor optimism. | | Technical Outlook: Starting to show signs of a potential top by 1.8250 after putting in a very strong bearish outside week. Follow through in the current week has been limited but we look for additional setbacks over the coming weeks back towards the 1.6000 area from where scope exists for renewed buying. Above 1.7500 delays. |
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US DOLLAR / SOUTH AFRICAN RAND
| | Fundamental Outlook: On March 18 the South African Reserve Bank (SARB) announced seven new meetings for 2009, including one on March 23-24. Given the sharp deterioration in South African economic conditions, as evidenced by the drop in manufacturing output by a record 11.1% in January from a year earlier and plunge in business confidence to a nearly 10-year low, the markets are expecting the SARB to cut rates by 100 basis points to 9.50%. Past rate cuts haven’t had a big impact on the ZAR, but if the SARB enacts a bigger-than-expected reduction and signals potential for further cuts, the South African rand could indeed pull back against the US dollar. | | Technical Outlook: Still confined to a very choppy multi-week range going back to October 2008. The market is now testing the recent internal range lows by 9.50 with only a break below to expose the range key lows by 9.20. A break below 9.20 would be significant and shift the overall structure. Inability however will keep trade range-bound. |
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US DOLLAR / SINGAPORE DOLLAR
| | Fundamental Outlook: Like many of the other Asian currencies - and EM currencies in general - the SGD has gained amidst broad USD declines and improved risk appetite. USD trends are likely to determine price action for the USD/SGD pair going forward as fundamentals don’t tend to have a large impact. Nevertheless, there will be a handful of economic releases in the coming week, including CPI on March 23 and industrial production on March 26. These reports are likely to signal easing price pressures and contracting output as export demand falls. | | Technical Outlook: Medium-term studies are rolling over with the market showing some good downside follow through after the previous bearish weekly close. Deeper setbacks are now seen over the coming week back towards 1.4900, with a break below to accelerate. Only back above 1.5450 negates. |
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