Daily Commentary - 07 July 2017

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

- USD / ZAR 13.4697 - EUR / ZAR 15.3768 - GBP / ZAR 17.4443 -

Economic Events:

07-July: US Change in Nonfarm Payrolls ; Unemployment Rate

Market Commentary:

Yesterday was the first day this week that saw some Rand strength in the latter sessions of trading (local time). It was a day of very mixed sentiment and we most definitely haven’t seen any signs yet that the current loses that the Rand have suffered are coming to an end.  Still a little reassuring to see the early U.S trading session bringing more buyers than sellers; a very different play on things to Wednesday. We again on more than one occasion looked to break above 13.50 (with a low of 13.5075), and the highs 13.35 was the best level which was seen in the early morning trades and then 13.40 mid-afternoon and again around 8:00p.m. before closing in N.Y. at 13.44.

No doubt about it EM currencies have had a very rough week and remain under strain. When you look at the more actively traded ones it is only the Turkish Lira that’s had a tougher time that the Rand. Yesterday ECB minutes also didn’t help matters as most ECB’s chief economist are reading things to show that deflation risks have vanished in the euro area, but underlying inflation is subdued and policy makers are still warning of risks if financial conditions tighten. There is an expectation to see gradual withdrawal of policy accommodation from January, tapering QE to zero and only then might we see any rate hikes. This has led to added activity in the bond markets and yields are trading higher across the board.  Care should be taken on the timing of normalization and it may happen slower than what a first glance would suggest.

If the history of the Markets performance as was seen during the US “Taper Tantrum” is anything to go by, these comments and eventual moves should most-likely put pressure on Emerging Markets and high yielding currencies, and this EU higher rate bias is sadly going to put a bit more added pressure on EM’s.

For now the 200 day moving average at 13.4420 remains pivotal, with 13.50 still proving to be a very strong upper end resistance level.  We know further volatility will get felt with US Non-Farm Payrolls data out this afternoon at 2:30p.m..  A stronger U.S. labour sector will continue to push US yields out and continued pressure on EM’s. (The market is expected a figure 178k).

Our Range for the Day (. . . before Non-Farms) :-      13.36   -   13.52