Daily Commentary - 04 October 2018

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

USD / ZAR 14.6448 - EUR / ZAR 16.8279 - GBP / ZAR 18.9939 -

Economic Events:

04 October: US Initial Jobless Claims, Consumer Confidence

05 October:SA Net Reserves - US Trade Balance, Nonfarm Payrolls

Market Commentary:

The morning trading session has opened on a weaker ZAR following the overnight New York trading session.  USD and US benchmark bond US-10yr were lifted on the back of Fed chair Powell’s comments and in turn saw a sell-off in emerging markets currencies.  US-10yr yield accelerated beyond 3.2% for the first time since 2011 and the EURUSD is trading at 1.1478 at the time of writing.  USD rally has seen the ZAR losing more than 3% already in this month.  The morning session has seen USDZAR break through the key resistance level of 14.55 then 14.70.

Not much respite has come from the latest World Bank growth estimate for South Africa.  The Bank has cut SA GDP growth from 1.4% to 1% for 2018. High unemployment remains a constraint on domestic demand further seeing subdued growth for 2019.  Adding to further pressure on SA consumer is the news that the energy regulator NERSA has granted Eskom a 4.1% tariff hike, coning into effect April 2019.  Regional GDP expansion has been forecast to 2.7% from earlier estimates of 3.1% for 2018.

EURUSD focus continues to be driven by news coming from Italy. Positive news on EU and Italy reaching an agreement on Italy’s government deficit target will see the EUR reacting positively.

Today we have the release of some important US jobs data that will give indications on tomorrows all important Nonfarm payrolls data.  The feeling is that should today's jobs data dissappoint, the USD may lose some of the ground it has currently mad up, however, if it does impress, we could see the current USD trend continue.

Range for the day: 14.4500 – 14.8000