Daily Commentary - 03 May 2018

- USD / ZAR 12.6188 - EUR / ZAR 15.1406 - GBP / ZAR 17.1843 -

Economic Events:

03 May : EC CPI & PPI - US Trade Balance

04 May : US Non-Farm Payrolls

Market Commentary:

Local Front

The US Federal Reserve Bank held interest rates unchanged last night as expected, leaving the rand relatively steady at R12.65 to the dollar as we opened this morning.  (The rand was trading at R15.17 to the euro and R17.21 to the pound at around the same time  -  7a.m.). 

While the strength of the US dollar has played a significant role in rand weakness, continuing strikes, a current account deficit and civil unrest have also contributed, said analysts at Nedbank Corporate and Investment Banking.

The rand weakened to R12.71 to the dollar late yesterday. That was its worst level in four months as the dollar broke through $1.20 to the euro for the first time since January on market speculation that the US Federal Reserve might adopt a more hawkish stance. 

Although news that US President Donald Trump’s import duties on steel and aluminium may threaten about 7,500 local jobs kept the rand on the back foot, some analysts believe it was essentially still a dollar story driving the value of the rand. (Business Day) 

International Front

The U.S. dollar fell from 2018 highs set earlier on Wednesday after the Federal Reserve indicated it may allow inflation to run above its 2% target, raising concerns that monetary accommodation will stay loose even as they hike rates. The U.S. central bank held interest rates steady and in a statement following the end of a two-day policy meeting said that inflation had "moved close" to its target and that "on a 12-month basis is expected to run near the Committee's symmetric 2% objective over the medium term”. 

“If inflation moves higher and they don't respond to it, they are essentially keeping the accommodation in the economy the same,” Mark McCormick, North American head of fx strategy at TD Securities in Toronto said. “That's negative for the dollar because ... the dollar needs higher real rates to essentially pull in the funding from the rest of the world”. Real rates adjust for the impact of inflation. 

The dollar index turned negative on the day, falling 0.1% to 92.358, after rising before the Fed statement to 92.718, the highest level since 28th Dec.  The greenback has been bolstered in recent weeks by the expectation that the Fed will continue to raise rates while other central banks, including the European Central Bank, are seen as taking longer to normalize monetary policy. (Reuters) 

International Data Front

Investors are next focused on Friday's U.S. employment report for April for further indications of the strength of the economy and inflation pressures.  U.S. private-sector employers hired 204,000 workers in April, the smallest monthly increase since November, the ADP National Employment Report showed. 

At 11h00 today the South African Chamber of Commerce & Industry is set to release SA’s Business Confidence Index and Euro Stat will release Consumer Price Index. 

Our Range for the Day   :-       12.56     to   12.70