Daily Commentary - 09 January 2019

Merchant West Financial Services Company

USDZAR: A slight recovery in the U.S. Dollar yesterday saw the Rand touch the upper end of our suggested range at 14.05. This however faded with the USD in the evening session as we moved back below 14.00 and eventually closed at 13.96. ZAR continues on a positive path in 2019 with gains of 3.7% thus far. Although data risk remains low for the day ahead – investors will be monitoring the #POTUS as the U.S. and China hash out tariff deals as well as another ‘small’ matter regarding the U.S./Mexican wall. Global themes are set to dominate the direction for Emerging Markets in the near term. A positive outcome in the trade discussions is likely to see an EM rally with ZAR particularly benefitting due to our close alignment to the Chinese market. We will be watching to see if the local currency can get further momentum towards 13.70 otherwise a move to 14.20/25 levels will question the downside with sideways trade likely.

Commodity-linked currencies such as the Australian dollar and the Canadian dollar rose on Wednesday, helped by a rise in oil prices and growing optimism that China and the United States may be inching toward a trade deal. News that the two sides had agreed to extend trade talks in Beijing for an unscheduled third day on Wednesday boosted oil prices, with U.S. West Texas Intermediate (WTI) crude oil futures topping $50 a barrel for the first time this year. That, in turn, helped spur demand for riskier assets and commodity-linked currencies. “Markets are finding comfort in the fact that the trading level of WTI futures has shifted above $50 a barrel,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities. “Commodity-linked currencies are performing strongly as a result,” he said, noting that the WTI futures had tried, but were not able to cross the psychologically-important level during the previous trading session. The Aussie, often considered a gauge of global risk appetite as well as a liquid proxy of Chinese growth because of Australia’s export-reliant economy, was up 0.3 percent at 71.62 cents.

 

The dollar index, which measures the greenback against a basket of six peers, edged 0.1 percent lower to 95.803. It hovered not far off an 11-week low of 95.638 touched early this week. Against the yen, the dollar gained one-tenths of a percent to 108.84 yen per dollar. Elsewhere, the euro edged up 0.2 percent to $1.1459, but its rebound was not big enough to recover a slightly steeper loss in the previous session on concerns about a slowdown in the euro zone economy. An unexpected fall in German industrial output for the third straight month weighed on the euro during the previous session. The drop was modest, but it underscored concerns about a slowdown and the European Central Bank’s caution as it tries to wean the region off stimulus. The British pound tacked on 0.2 percent to $1.2740. Traders expect sterling to remain volatile over the next few weeks due to Brexit woes.

Data sourced from Reuters

Range for the day – R13.70 – R14.10/$