Daily Commentary - 04 October 2017

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

- USD / ZAR 13.5934 - EUR / ZAR 15.9890 - GBP / ZAR 18.0227 -

Economic Events:

04-Oct: SA SACCI Business Confidence

05-Oct : US Jobless Claims ; Trade Balance

06-Oct : SA Net Reserves - US Change in Nonfarm Payrolls ; Unemployment Rate

Market Commentary:

The recent tumble of the rand against the US dollar has been largely attributed to international influences, especially in the United States.  Although domestic factors which once was the hallmark of rand volatility have taken the backseat in determining the direction of the rand, it does not mean our local outlook has made any significant improvements.  Markets have just become accustomed to receiving bad news, and over time their reactions tend to diminish. The recent dollar rally appears to be on the back of comments by Janet Yellen, Chair of the US Federal Reserve, which signalled that their interest rate hiking cycle may soon step into full-swing, even though inflation is still missing.  Hawkish comments from the Fed, combined with a tax overhaul proposal by US President Donal Trump, fuelled the US dollar and increased the pressure on emerging market economies.  During the course of the week, the rand approached levels only rivalled by the aftermath of the April cabinet reshuffle.  This morning, the rand opened remarkably stronger and appears to be regaining some traction against the US dollar.  Analyst expect a possible recovery in the local unit. George Glynnos, chief economist at ETM Analytics, said the rand could retreat back to R12.50/$ to R13/$ as he doesn’t believe that the current sell-off is the start of a big reversal for the local unit which has remained remarkably resilient (Source: Moneyweb).

The US dollar rally seems to be cooling-off from a near two-month high, as the dollar index, which tracks the greenback against a basket of six major currencies, slipped 0.2% on Tuesday.  Market participants are speculating that the next Chair of the US Federal Reserve to be elected by President Donald Trump, might be less hawkish than what was hoped for.  A new dovish Chair could counter bets of monetary policy normalization and would put pressure on the US dollar.  In the European markets, the independence move by Catalonia is weighing on the single currency.  Spanish Prime Minister Mariano Rajoy faces the country’s biggest constitutional crisis in decades after the ballot, in which Catalan officials said 90 percent of voters had chosen to leave Spain.  “Political risks in Europe have increased,” said UBS currency strategist Constantin Bolz, in Zurich.  However, “overall our expectation is that it will not have a dramatic, long-lasting impact.”  Adding to a sense of uncertainty, Brexit minister David Davis said on Tuesday that Britain is ready to walk away with no deal, and that officials were “contingency planning” to make sure all scenarios were covered (Source: Reuters).

Our Range for the day: R13.5000 - R13.7000