Daily Commentary – 18 October 2018

Contact Merchant West Capital Markets on: (+2711) 305-9500 or treasury@merchantwest.co.za

USD / ZAR 14.2566 - EUR / ZAR 16.3898 - GBP / ZAR 18.6569 -

Economic Events:

18 October: SA Mining Production - US Initial Jobless Claims ;Continuing Claims

19 October: EC Current Account - US Existing Home Sales

Market Commentary:

South Africa's rand firmed on Wednesday as a jump in domestic retail sales and a global return of risk sentiment helped the currency claw back earlier losses. The Rand traded as low as 14.1050, but weakened after the FED minutes were released during NY trading time. The rand has been on the back foot following second-quarter gross domestic product data on Sept. 4 which showed the economy had entered into technical recession.

International front - The dollar was firmer against its major peers on Thursday after minutes from the U.S. Federal Reserve's September meeting affirmed expectations that the central bank is likely to continue raising interest rates this year. The minutes from the Fed's Sept. 25-26 meeting showed every Fed policymaker backed raising interest rates and also generally agreed borrowing costs were set to rise further, despite U.S. President Donald Trump's view that the tightening have already gone too far.

Rate futures are now pricing in an 83 percent likelihood that the Fed raises rates in December, according to the CME Group's FedWatch Tool, the fourth hike this year. Two more increases are expected next year. The dollar index .DXY , which measures its value against six major peers, traded at 95.65, up 0.08 percent on Thursday. “The dollar is being bid as there is follow through support post the release of the FOMC minutes," said Ray Attrill, head of currency strategy at NAB. “Dollar bulls are playing to the view that the market is under-pricing what the U.S. Fed can do," added Attrill. U.S. benchmark 10-year treasury yields climbed to 3.21 percent on Thursday, on increasing rate hike expectations. The last time they traded below the psychologically important 3 percent level was on Sept. 18. focus is also trained on Rome, where the Italian government is headed for a showdown with Brussels over Italy's insistence on pushing through a budget deficit target of 2.4 percent of GDP, wider than its previous target of 1.9 percent.

Italy's draft budget for next year, which boosts welfare spending, cuts the retirement age and hikes deficit spending, could breach European Union's fiscal rules that require Rome to lower its large public debt. The blowout has sparked investor concerns about more political tensions in the euro zone between Brussels and the common currency's member states. The euro changed hands at $1.1497 on Thursday, trading flat versus the greenback, after losing 0.65 percent on Wednesday. The euro has lost 2.73 percent versus the dollar over the last three weeks. “As things stand, Italy is likely to further dampen sentiment in the single market before the first steps towards a compromise are in sight. Our end-2018 target for euro remains at 1.12," said Philip Wee, FX strategist at DBS in a note (Reuters)

EUR/USD is likely to find support at 1.1476 levels and currently trading at 1.1499 levels. The pair has made session high at 1.1547 and hit lows at 1.1499 levels. The euro declined against US dollar on Wednesday after minutes from the Federal Reserve’s September meeting affirmed expectations that the U.S. central bank is likely to continue raising interest rates. Every Federal Reserve policymaker backed raising interest rates last month in a meeting where they also generally agreed borrowing costs were set to rise further, according to minutes from the meeting released on Wednesday (FXWire Pro)

Our Range for today: R14.1500 - R14.4500