Daily Commentary - 13 September 2017

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

- USD / ZAR 13.0282 - EUR / ZAR 15.6220 - GBP / ZAR 17.3430 -

Economic Events:

13-Sep: SA Business Confidence Index - EC Industrial Production

14-Sep: SA Current Account data - UK BoE policy decision - US  CPI ;Jobless Claims

15-Sep: US Retail Sales ;Univ. Of Michigan Sentiment

Market Commentary:

The rand came under pressure yesterday as the US dollar started its road to recovery, reducing the demand to hold riskier currencies such as the local unit.  The rand had weakened 0.35% to almost a one-week low as risk appetite faded.  “Demand from local corporates and offshore investors was fairly robust this morning even after the SARB’s comments on the Protector’s report.  The rand’s move was about the dollar’s comeback versus EM currencies and commodities,” senior trader at Standard Bank Oliver Alwar said.  On Tuesday, the SARB submitted an affidavit accusing the Public protector procedural unfairness and vital omissions.  This followed her report in which she recommended that the SARB change its mandate from price and currency stability to growth.  Traders will be closely monitoring any new developments in this latest spat, as it is yet to affect the rand.  On the JSE, the Top-40 traded up 0.7% and the All-share up 0.6%, supported by stronger mining shares.  South Africa’s central bank is expected to cut its benchmark interest rate by another 25 basis points next week, taking it to 6.50%, as inflation is considered likely to moderate (Source: Moneyweb & Reuters).

This year, the US dollar has suffered from an increasingly uncertain fiscal- and monetary policy outlook in the US.  As fears surrounding Hurricane Irma and the North Korea threat receded, soothed investor sentiment aided the dollar index, which tracks the currency against a basket of six major currencies, in extending its gains.  This week has marked a significant decrease in dollar-negative factors as talks concerning a higher US debt ceiling have also been placed outside the scope of this month.  The dollar also found support from higher US Treasury yields and upcoming inflation data which could signal the US Federal Reserve`s next interest rate move. Investors are starting to unwind their bearish bets against the US dollar as they shift their focus towards the inflation data due on Thursday.

During last week, a European Central Bank policy meeting fuelled policy tapering optimism, with bullish bets driving the euro to a near three-year high.  However, the surge led to some confusion amongst some investors as Mario Draghi, President of the ECB had also said after the meeting that the euro’s strength is already weighing on inflation and will be a key factor when it decides next month how to proceed with its massive stimulus programme in 2018. “The euro’s strength is pressuring ECB’s monetary policy and policymakers are also beginning to show concern about the currency appreciating,” said Koji Fukaya, president at FPG Securities in Tokyo.

Our range for the day: R12.9500 - R13.1000