Daily Commentary - 16 March 2018

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

- USD / ZAR 11.8048 - EUR / ZAR 14.6041 - GBP / ZAR 16.5090 -

Economic Events:

16 March : EC CPI Data - US Housing Starts ;University of Michigan Sentiment

Market Commentary:

As South Africa approached the end of last year, the local economic environment was in a dire position and the newly appointed Finance Minister Malusi Gigaba painted a gloomy outlook for the country going forward. Shortly after, Cyril Ramaphosa took ever the reigns on the ruling ANC party and introduced a sense of euphoria into the local market which lead to the rand strengthening in excess of 10% against the dollar. However, it appears that the hype is slowly fading with further strengthening becoming increasingly unlikely. The rand slightly weakened yesterday as “relief for emerging market and commodity-linked currencies did not last with traders opting to take profits in uncertain conditions” (source: Moneyweb). Other emerging market currencies are also becoming more attractive than the rand for carry trades due to likelihood of an interest rate cut.

In the US market, the dollar has been trading on the backfoot following the dismissal of Rex Tillerson, US Secretary of State. President Donald Trump has since removed his national security advisor, H.R. McMaster as well.  “The best explanation for the impact the ongoing personnel changes taking place in the White House is that the dollar stands to weaken as it gets easier for President Trump to pursue protectionist policies,” said Daisuke Karakama, chief market economist at Mizuho Bank in Tokyo (source: Reuters). The dollar has stabilised with the dollar index, which tracks the greenback against a basket of six major currencies, trading marginally higher. Market participants are now placing more weight on the upcoming Federal Reserve policy meeting, where the first interest rate hike for the year is expected.

In the European market, the euro lost some ground overnight.  “The common currency was little changed on the week, failing to make much headway against its struggling U.S. peer as the European Central Bank has stressed that its exit from easy monetary policy would be very slow” (source: Reuters). The pound also weakened as “worries have grown that Britain and EU officials would fall short of securing a transition arrangement at the March 22-23 summit as differences have grown in recent days. Such an outcome could question market expectations of a 25 basis point rate increase by the UK central bank in May” (source: Reuters).

Our range for the day : R 11.8000 - R 12.0000