Daily Commentary - 08 February 2019

Merchant West Business Finance

Merchant West Capital Markets

USD/ZAR 13.6703 | EUR/ZAR 15.4987 | GBP/ZAR 17.6940

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Market Data:

08 Feb - GE Trade Balance ;Current Account 

Market Commentary:

 

South Africa's rand weakened on Friday, as the currency along with other emerging markets were pressured by a stronger dollar. At 08h40, the rand was 0.39 percent weaker at 13.6600 per dollar, its weakest since Jan. 29, compared with an overnight close of 13.6250 in New York. Since last Thursday's rally to a two-and-a-half-year peak, the rand has backtracked more than 3 percent in the face of a resurgent dollar, which was hovering near a two-week high on Friday. The greenback has benefited from flagging global risk appetite, soured by investors' uncertainty over U.S.-China trade negotiations, slowing global growth, and Britain's chaotic exit from the European Union due next month.

With these factors playing in the background, investors sought safe-haven assets as the rand tumbled this week through successive technical support levels, first at 13.30 and then 21-day moving average at 13.64 in the previous session. President Cyril Ramaphosa's State of the Nation speech late Thursday, where he promised to split struggling state power giant Eskom into three separate entities, failed to halt the rand's slide. "The rand's ability to hold on to gains will likely be tested over the coming month. Investor sentiment is likely to face crossroads," said currency analysts at Nedbank Mehul Daya and Walter de Wet in a note.

The budget speech scheduled for Feb. 20 is the next major test for the currency, followed by national elections on May 8, with volatility expected to rise as investors maintain a bearish stance.

International currency front -The dollar held near a two-week high on Friday, as demand for safe-haven assets rose on uncertainties about the path of U.S.-China trade negotiations and broader worries about slowing global growth. Such concerns were brought to the fore on Thursday after the European Commission sharply cut its forecasts for euro zone economic growth this year and next on expectations the bloc's largest countries will be held back by global trade tensions and domestic challenges.

Investors' anxieties about the global economy were also compounded by comments from U.S. President Donald Trump, who said he did not plan to meet with Chinese President Xi Jinping before a March 1 deadline to achieve a trade deal. "The dollar is being supported by worries over global growth and external factors," said Sim Moh Siong, currency strategist at Bank of Singapore. "Markets are waiting to see what policy measures can stabilise growth worldwide...until then, it's hard to see the dollar weakening."

The dollar index, a gauge of its value versus six major peers was up by around 0.1 percent at 96.59, sitting just shy of its two-week high. The index has gained for six straight sessions in a row. This was mainly due to a weaker euro, which has around 58 percent weightage in the index, and came despite the Federal Reserve's dovish shift on interest rates last week. The euro was marginally lower at 1.1338 against the greenback, on track to post its fifth straight day of losses. The single currency has been stumbling due to weaker-than-expected growth data out of the euro zone and expectations that the European Central Bank will keep monetary policy accommodative this year. Philip Wee, currency strategist at DBS, thinks it is likely the euro will depreciate below 1.10 this year on Europe's relatively weaker growth and inflation outlook against that of the United States.

International data front - U.S. consumer spending gathered momentum in November as households bought furniture, electronics and a range of other goods, which could further allay fears of a significant slowdown in the American economy even as the outlook overseas continued to darken. The upbeat data from the Commerce Department on Friday bolstered expectations that the Federal Reserve will raise interest rates for a fourth time this year at its Dec. 18-19 policy meeting, despite moderating inflation and tighter financial market conditions. It also stood in stark contrast to reports from China showing a dramatic fall-off in retail sales in the world's second-largest economy and from Europe where a key measure of business activity expanded at its slowest rate in four years. The U.S. central bank has hiked rates three times this year. “Today’s report shows Fed officials consumers just aren't confident, they are also putting their money where the mouths are and buying enough goods to keep the economy humming," said Chris Rupkey, chief economist at MUFG in New York.

Our Range for today: R13.5000 - R13.8000