South African rand weakened after mining output drops

Reuters: The South African rand weakened against a firm dollar on Thursday after monthly mining figures showed a drop in production, while analysts had predicted an increase.

SOUTH AFRICAN RAND WEAKENED

The rand traded at 18.9425 against the dollar at 1502 GMT, about 0.7% weaker than its previous close. The dollar was trading up about 0.4% against a basket of global currencies. South Africa’s total mining output fell 3.6% year on year in July after a revised 1.3% increase the previous month, Statistics South Africa data showed. Analysts polled by Reuters had predicted a 0.5% increase in July.

“This discrepancy has caused concern for export prospects, which in turn has had a negative impact on the value of the rand,” said Shaun Murison, senior market analyst at IG. However, he said dollar strength was a bigger factor in the rand’s fall. The dollar hit its highest level in six months on Thursday, as economic data was mostly stronger than anticipated and the European Central Bank signaled it was finished with its rate hike cycle.

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With little else on the economic calendar for the rest of the week, mining investment South Africa will turn their attention towards local inflation figures and an interest rate decision by the central bank next week. Analysts polled by Reuters expect the South African Reserve Bank to keep interest rates on hold at its Sept. 21 meeting. South Africa’s benchmark 2030 government bond was weaker, with the yield up 3.5 basis points at 10.440%. Shares on the Johannesburg Stock Exchange closed higher, with the broader all-share index up 1.43% and blue-chip Top-40 index up 1.52%.

U.S. DOLLAR

Reuters: The dollar held steady in Asia on Friday, easing slightly from overnight gains against peers, while the yuan strengthened in the wake of some market-beating economic data out of China. The dollar jumped overnight after U.S. retail sales received a boost from higher gasoline prices, increasing 0.6% in August versus an estimated 0.2% rise, while market participants reacted to the European Central Bank’s 25-basis point hike. The U.S. dollar index last stood somewhat lower at 105.25, but still near Thursday’s six-month peak of 105.43. The euro remained near Thursday’s multi-month low of $1.0632 against the greenback.

The yuan and Australian and New Zealand dollars received a boost after a batch of economic data from China in the Asian morning came in better-than-expected for some key indicators, providing a rare lift in sentiment. The offshore yuan rose over 0.3% against the dollar to around 7.262 after the release. The yuan had weakened on Thursday after the People’s Bank of China’s announced that it would make its second 25-basis point cut to banks’ reserve requirement ratio this year.

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While the move was aimed at keeping liquidity ample and supporting a shaky economic recovery, it could exacerbate the decline in the already struggling yuan as domestic rates fall further. The PBOC has provided “piecemeal” stimulus, but the economy still suffers from a lack of consumer confidence, said Rodrigo Catril, senior FX strategist at the National Bank of Australia. “We think it’s a little bit too early to see, if you like, the green shoots coming from all the stimulus that’s been introduced.”

The Australian dollar, a proxy for China growth, strengthened 0.5% to $0.6473, while the New Zealand dollar last stood 0.3% higher at $0.5931. Elsewhere, the euro was up 0.1% at $1.0652, just off a six-month low of $1.0632 against the dollar after the ECB hiked rates another 25 basis points at its monetary policy meeting on Thursday. “It appears that markets have characterized the ECB’s 25bp hike yesterday as a dovish hike that has sent EUR and European yields tumbling,” analysts at Mizuho Bank said in a note.

Sterling rose over 0.1% to $1.2429, hovering above a three-month low. The yen stuck near 147.39 per dollar in the Asian morning. With the yen hanging close to a 10-month trough, market participants have been keeping a cautious watch for the possibility of intervention by Japanese authorities. “We’re keeping a close eye on USDJPY at the 150 level and given the market’s reluctance to take it up to that point, we don’t think we’re alone in doing this,” said Simon Harvey, head of FX analysis at Monex Europe.

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BRITISH POUND

Reuters: Sterling was a touch softer but held above this week’s three-month lows against the dollar on Thursday, having recovered some ground after a selloff the previous session following weak UK economic data. Against the euro, the pound was down just 0.1% ahead of a meeting by the European Central Bank, which is set to decide on whether to raise its key interest rate again. It was last trading at 85.97 pence per euro and little changed on the day at around $1.25, above Wednesday’s three-month low of $1.2434.

An industry survey released earlier on Thursday showed British house prices had the most widespread falls in 14 years in August as demand weakened against the backdrop of elevated mortgage costs and economic uncertainty. This followed data on Wednesday showing the economy contracted by 0.5% in July, worse than expectations for a contraction of 0.2% and the largest drop in monthly output since December 2022.

“Momentum is to the downside in the near-term,” said MUFG senior currency analyst Lee Hardman, referring to the pound’s outlook. “What’s driving the pound gradually lower is that markets are gradually paring back their rate hike bets,” he said noting that UK inflation numbers, released ahead of the Sept. 21 Bank of England meeting, would also be in focus. Hardman added that if the ECB hikes interest rates later on Thursday, the euro could rally past the 86 pence marker.

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GLOBAL MARKETS

Reuters: Asian stocks rose strongly on Friday, extending a global equity rally, after better-than-expected Chinese economic data added to the good vibes from expectations that tightening campaigns by the world’s biggest central banks were close to over. The dollar stuck close to a six-month peak from overnight against major peers, buoyed by robust U.S. economic data, while the euro sagged following the European Central Bank’s signal that Thursday’s rate hike was probably the last this cycle.

Crude oil hit a fresh 10-month top. MSCI’s broadest index of Asia-Pacific shares rallied 0.84%. Japan’s Nikkei jumped 1.33% to a two-month high. Hong Kong’s Hang Seng added 1.2%, and mainland Chinese blue chips rose 0.2%, flipping from early small losses. Australia’s stock benchmark surged 1.75%. U.S. S&P 500 futures pointed to a 0.17% rise, after the cash index rallied 0.84% on Thursday.

Chinese gauges of retail sales and industrial output for August handily topped economists forecasts, providing additional tailwinds from the central bank’s decision overnight to cut banks’ reserve ratio requirements for a second time this year. It was not all blue skies though, with data earlier in the day showing the biggest drop in new home prices in 10 months – another reminder of the property sector’s struggles, after Moody’s cut the sector’s outlook to negative on Thursday.

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“It’s certainly not a definitive turning point, but perhaps we’re seeing green shoots in China’s economy,” said Kyle Rodda, senior market analyst at brokerage firm Capital.com, calling the retail sales figures “particularly heartening.” “It’s a nice little shot in the arm to end the week” for stock markets, but “I think investors will be searching for more in terms of support from the central government, and ultimately, more fiscal support is what’s required to boost demand,” he said.

The overall improving economic outlook bolstered the Chinese yuan, which gained about 0.3% to 7.2709 per dollar in offshore markets. Australia’s dollar, which often trades as a proxy for the country’s top trading partner, rose 0.3% to $0.6460. However, a gauge of the U.S. dollar against six of its biggest developed-market peers stuck close to the six-month peak it reached overnight, buoyed primarily by the euro’s steep overnight slide.

The so-called U.S. dollar index edged down 0.08% to 105.33, after hitting the highest since early March at 105.43 on Thursday. The euro was flat at $1.0643, languishing near the overnight low of $1.0632, the lowest level since March 20. The European Central Bank hiked its key interest rate to a record 4% on Thursday, but hinted that this latest increase would likely be its last.

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Meanwhile, U.S. data showed producer prices increased by the most in more than a year in August and retail sales also rose more than expected. But both of those figures were swelled by higher gasoline prices. As a result, traders stuck to bets for the Federal Reserve to skip a rate hike next week, in what might be the end of the tightening cycle. “A dovish ECB rate hike contrasted against a U.S. economy ticking all the boxes to retain its Goldilocks status into year-end,” said Tony Sycamore, a market analyst at IG.

The dollar index is on track for a ninth straight weekly advance, the longest run in nine years. Whether it can extend that to a tenth week depends of Fed Chair Jerome Powell’s tone after the central bank policy decision on Sept. 20, Sycamore said. In energy markets, crude oil extended its rise in Asia trading, touching fresh highs since November. Brent crude rose 0.5% to $94.16, while the U.S. West Texas Intermediate crude was up 0.6% at $90.74.

Published by the Mercury Team on 15 September 2023