Confidence evaporates as commodity currencies suffer – 27th July 2015

Friday’s big mover was the South African Rand which fell by 1% to a fresh all-time low with £1 Sterling worth R19.72 at it’s peak. The move was linked to continued weakness for gold and commodity prices and a feeling amongst investors that the South African Reserve Bank’s interest rate increase the previous day was too little too late.

The Australian Dollar was the next biggest loser, weakening by half a cent while the Euro took top spot, gaining 0.2% against Sterling. The US and NZ Dollars and the Swiss Franc were unmoved against Sterling.

Friday’s round of purchasing managers’ index readings produced some uninspiring figures. The only one to exceed investors’ expectations was from the US while none of the Eurozone readings was an improvement on the previous month and every one of them fell short of analysts’ forecasts. In Britain mortgage approvals for June were higher on the month as the BBA noted that “the housing market is beginning to hot up again” and that there had been an increase in the number of people remortgaging to pre-empt higher UK interest rates.

The theme today will be confidence. It has evaporated again in Shanghai, where the stock index is 8.5% lower on the day, and the Bloomberg commodity index has touched a new 13-year low. This morning there is German business confidence released and the CBI’s Industrial Trends Survey, which looks at UK manufacturers’ order books. This afternoon’s important figures are for US durable goods orders. They have recently been given more than the usual attention by investors, who are conscious that the Federal Reserve is also watching them closely.

In theory, the decline in commodity prices has been going on long enough to be priced into financial markets and currencies. By the same token, the volatility of the Shanghai stock market ought to be well-known. However, the commodity-related currencies could come under pressure today, as European equity prices already have.