Daily Commentary - 06 April 2018 | Merchant West

Daily Commentary - 06 April 2018

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

- USD / ZAR 12.0590 - EUR / ZAR 14.7504 - GBP / ZAR 16.8727 -

Economic Events:

06 April : US Change in Nonfarm Payrolls ; Unemployment rate

Market Commentary:

On Thursday, the rand continued to show signs of weakness as the US dollar strengthened on hopes that a full-scale trade war between the US and China could potentially be averted. The tensions between the world`s two largest economies has drawn the attention of international markets and appears to overshadow other economic drivers of currency movements. A negative outcome could disrupt trade flows on a global scale and could hurt the local currency. Halen Bothma, an analyst at ETM, said the rand was also undermined by concerns about the government’s fiscal position, highlighted this week by the tax service admitting it had missed its revenue collection target and Moody’s downgrading state power giant Eskom. However, an improvement in domestic growth in line with the 1.6% expected increase forecast could support the rand in the coming year. A Reuters poll of 30 strategists taken April 3-5 showed the rand is expected to remain mostly resilient against the dollar, around 11.93/$ by end-September, and to slip slightly to 12.13/$ by this time next year (source: Reuters).

In the US market, the dollar index, which tracks the greenback against a basket of six major currencies remained relatively unchanged. However, “the dollar faltered on Friday after U.S. President Donald Trump threatened $100 billion in additional tariffs on China, in a fresh escalation of trade tensions between the world’s largest economies” (source: Reuters). There is currently not a great deal of clarity as to how these trade tensions will play out, with many hoping that the US and China will arrive at a compromise. “Beyond the trade turmoil, financial markets are focused on Friday’s U.S. non-farm payrolls report, which could determine the pace of future Federal Reserve interest rate rises and the dollar’s direction” (source: Reuters).

In the European markets, the euro remains stable after marginally strengthening by 0.1% on Thursday. In the UK market, the pound lost some ground after British services exhibited the lowest growth since the Brexit referendum vote. Heavy snow - brought by the “Beast from the East” cold weather bout - and weak consumer demand weighed on services in March. Traders this week have largely shrugged off the data as they focus on any signs economic weakness could steer the Bank of England from its path of an expected interest rate rise in May. (source: Reuters)

In other news, former president Jacob Zuma is expected to appear in the Durban High Court on today where  he will face 16 charges relating to 783 payments, which he allegedly received in connection with the controversial multibillion-rand arms deal (source: News24).

Range:11.90 – 12.10