Daily Commentary - 02 August 2018

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

USD / ZAR 13.3119 - EUR / ZAR 15.4837 - GBP / ZAR 17.4074 -

Economic Events:

02 August: EC PPI Data - UK BOE Rate Decision - US Initial Jobless Claims

03 August  : SA PMI Data - EC PMI Data ;Retail Sales - US Trade Balance ;Change in Nonfarm payrolls

Market Commentary:

Yesterday proved to be quite an interesting day, as we started feeling shell shocked after President Ramaphosa announced on Tuesday night that the ANC would be changing the constitution. Markets certainly started the day very unsure and between 7:00 and 8:00a.m. we saw the Rand falling aggressively to test 13.38 before finding any traction. But it did turn out to be a bit of storm in a tea cup, once the dust had settled and the Markets had time to fully digest exactly where to from here, we saw the Rand recovering nicely, with the Global “risk on” climate ahead of the FED announcement proving again to be the main catalyse in respect to the Rand strengthening.

By 9:00a.m. we were already back into the upper 13.20’s and throughout the day continued to gradually pull back around 13.1900.

Although last nights’ FED Meeting wasn’t one of the major meetings and there was no press release directly thereafter, there was still a bit of activity if the FX Market.  Jerome Powell has signalled that the U.S. central bank is still on track to increase borrowing costs at its next policy meet in September. The Fed cited strong pace of economic growth, strengthening job market and inflation near its 2% target as reasons for its decision.

“Job gains have been strong, on an average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly,” is what the central bank said in its policy statement and it does still look like the FED (for now) is sticking to its’ planned agenda of two more hikes for this year. (Sept. and Dec.)

This has seen the Dollar strengthen quite a bit this morning, specifically against the majors.  The EUR/USD has dipped from the 1.1685 levels of yesterday afternoon to 1.1630 and is still falling. On the Sterling 1.3125 has dropped off to 1.3075 and here too we see things still moving lower.  The Rand, although trying to fight the good fight, it too has given back most of yesterday recovery and has climbed back above 13.30 and looks like it might sadly once again test the 13.38 level.

As mentioned in earlier report we always knew this week would be rather volatile driven mainly by the three Major Bank policy meeting and we do still have one more to go.  Later this afternoon is it the turn of Mark Carney of the BoE to delivery his report and as mentioned before really do feel this report could cause a lot more movement in Markets than the BoJ and the FED. However now that Wednesday evening is behind us focus again for the USD/ZAR FX Traders has shifted to the all-important U.S. Labour Market data of Friday afternoon.  The Non-Farm figure with July print primarily the starting point for the current “risk on” climate we are in   -   Are things about to turn come Friday afternoon or do we again get figures that show the U.S. job market is fracturing ?

Our Range for the Day  :   13.20   -   13.40