Macanese Pataca Extends Losses

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The Pound has risen to its highest level against the Mecanese Pataca (MOP) since 2023 amidst ongoing weakness in the CNH-linked currency.

MOP declines come after Macau reported that gross gaming revenue fell 12.4% month-on-month to MOP17.7BN in June, from the post-Covid high in May.

Gross gaming revenue fell 12.4% month-on-month to MOP17.7 billion in June, from the post-Covid high in May.

Gaming is the main export earner of Macau, a Special Administrative Region of China, and a fundamental source of support for the region's Pataca currency. Although the Pataca is fixed to the Renminbi (CNH), strong gaming earnings mean authorities can easily defend the peg and maintain reserves.

This is why analysts monitor the gaming sector when considering Macau's fundamentals.

"The decline, however, was understandable as June is typically a slow month. In the first six months of 2024, total gross gaming revenue reached MOP113.75 billion, up by 41.9% from the same period last year, but was still down by 23.9% compared with the same period in 2019," says Keung Ching, Hong Kong and Macau Economist at OCBC Bank.

Ching says the recovery in Macau's gaming sector has been largely led by the mass and premium mass segment since the removal of all Covid measures.

"A steady improvement in Chinese consumer sentiment in the coming months can continue to sustain Macau's gaming sector," says Tudor Turiceanu, CEO & Chief Editor at CasinoAlpha.

OCBC notes that the pace of growth for the VIP segment has also picked up lately, which can underpin revenues.

"The share of VIP segment had steadied and even bounced back somewhat to 25.1% in the first quarter this year. It showed that the VIP segment may be finding some success tapping into overseas high-roller market and adapting to the new regulatory environment," says Ching.

OCBC warns that authorities' further crackdown on cross-border illegal money exchanges and loan sharks will likely drag on the gaming sector.

The GBP/MOP exchange rate has this week risen to its highest level since July 2023 this week, in sympathy with the ongoing rally in GBP/CNH.

China's Renminbi has held steady against the U.S. Dollar, but outperformance by Pound Sterling is providing an idiosyncratic uplift to GBP/MOP. This as markets lower expectations for an August 01 interest rate cut at the Bank of England owing to robust domestic services inflation data.

This week saw a key member of the Bank of England warn that the timing of a first rate cut was still uncertain owing to strong services inflation.