Daily Commentary - 08 September 2017

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

- USD / ZAR 12.8226 - EUR / ZAR 15.4474 - GBP / ZAR 16.8490 -

Economic Events:

08-Sep: No Data of real importance

Market Commentary:

The Euro has surged to a 2 year high of 1.2080 against the Dollar after yesterday’s ECB policy meeting. Although the ECB has kept their key interest rate the same at 0% and inflation projections unchanged, Draghi did indicate that the ECB was preparing to scale back its 60 billion-euro-a-month buying program, saying “We will be ready for much of what we have to decide (to scale back stimulus) by October”. However the super strong Euro over the past 4 months has some policy makers concerned over the market becoming too overheated.  Draghi’s committee remains in a wait-and-see mode about the Euro strength, with disagreements about what exactly is driving it. It important to note that the Hurricanes that have and are due to rock the US will also be supporting the Euro strengthening further against the U.S. Dollar.

The resilient Rand opens today at 12.7750 and remains in a good position to insight even further gains against the Greenback as it appears to be very squarely a weaker USD that is keeping the pair on the defensive. Hurricane Irma has left utter devastation in the Caribbean and is due to smash into Florida on Sunday as the expense bill for Hurricane season rapidly rises. For the time being this is only adding to the Dollar’s woes, translating into weaker USD/ZAR base. The 12.60 level is hot on the lips of many traders which expect the move within the next couple of days. Monday could be a telling day as we start to grasp the actual extent of the damage of the most powerful hurricanes ever recorded. The reason the Rand has failed to move lower already is due to lacklustre mining and manufacturing data released yesterday. The manufacturing industry has contracted for a 4th consecutive month falling 1.4% y-o-y in July while the mining sector seems to have stagnated in the low, single digits of growth. This shows that these key sectors of our economy hold little scope for creating employment and boosting growth for the SA economy in the foreseeable future.

Moving to the UK, there will be quite a data dump heading into the weekend with industrial production, construction output, trade data as well as GDP estimates all scheduled for release today. Industrial production has been relatively weak in recent months, suggesting that the industry has not managed to benefit from more competitive export prices. We expect the recent slowing growth rhetoric of the UK economy to remain a factor.

Our range for the Day :-    12.68   -   12.93