Weekly Outlook: Trade Data Likely To Keep HKD Sluggish

Full Story: Testing support once again at the 7.7820 figure, theHong Kong dollar lost ground from last weeks advance and retested the 7.7870 topside resistance.  Still confined to a relatively tight range, the current price action is hovering on consolidation even as the Chinese yuan continues to trade at record levels against the dollar peg.  Subsequently, with the weeks data relatively lackluster, and not likely to spur further speculation, the probability of a breakout at this level may be limited.

Although full, this weeks schedule is likely to keep speculators at bay with most of the data being trade-centric.  Starting off the week, external trade figures are likely to be less than perfect with imports expected to outweigh exports.  For the month of August, imports are still expected to remain robust when compared to exports, rising 9.4 percent compared to last months 11.4 percent increase.  With economic prospects still positive in the Hong Kong economy, individuals are continuing to spend at a healthy rate, spurring the import component.  For the record, retail sales by value have increased for the fourth straight month in the most recent report for June.  The net balance will likely keep the trade balance in the negative, matching consensus estimates of a 5.2 billion dollar shortfall.  The effects of a negative trade balance will likely have adverse effects on the current account balance even as investment into the economy remains somewhat supported.  Rising to a staggering 35.51 billion dollars, the current account surplus is expected to fall short of the previous months net positive figure.  Subsequently, and rounding out the week, money supply figures are expected to show continually supported inflation in the country.  Although expecting a rise in both M2 and M3 supply, the true hard cash figure, M1, is expected to dip by 1.9 percent.  As a result, even though interest rate decisions are not pertinent in this currency, the effects may loosen policy makers in their reserve requirements at least in the interim.  Separately, the governments monthly budget is expected to continue its deficit, previously at 3.4 billion dollars lower.  Notably on the week, with the advent of a possible widening of the HKD trading band, Secretary of Treasury Henry Paulson will meet with key legislatures in hopefully putting to rest the import tariff bill that was tabled last year.  According to the Graham-Schumer bill, Chinese imported goods will be taxed by 27.5 percent, leaving demand slightly miffed at the higher prices and adversely effecting Chinese trade.

Economic data was confined to unemployment and inflationary surveys, with both purporting a relatively healthy picture for the Hong Kong economy.  Declining to 4.8 percent, the national unemployment rate improved as the overall labor force remains tight in the Asia tiger.  Creating 21,400 new positions, the economy is now fully supported, boosting the total employment figure to an all time record of almost 3.5 million jobs.   Subsequently, the seasonally adjusted unemployment rate declined to the lowest level in five years, boosted by further expansion.  The regions consumer price index additionally increased in the month of August.  Rising by 2.5 percent, the figure is higher than the consensus estimate of 2.4 percent, jumping above the previous 2.3 percent mark.  Attributed to higher consumer demand and spending, the figure is indicative of further growth as economy continues on healthy pace.

Economic Releases for September 25 October 2