Daily Commentary - 16 October 2017

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

- USD / ZAR 13.3391 - EUR / ZAR 15.7274 - GBP / ZAR 17.7417 -

Economic Events:

16-Oct: US Manufacturing Index

17-Oct: EU  Inflation Rate  ; Economic Sentiment - US Import and Export Prices ; Industrial Production ;Housing Market Index

18-Oct: SA Inflation Rate ; Retail Sales - GB Unemployment Rate

19-Oct : US Initial Jobless Claims ; Manufacturing Index

20-Oct : US Existing Home Sales

Market Commentary:

The Dollar Spot Index decline 0.6% last week after rallying for the previous four, which has certainly helped emerging market currencies across the board. The Rand managed to outpace many of its emerging market peers, strengthening 60 cents from it 6 month low of 13.86 on last week Monday to a high of 13.26 recorded on Friday night. The Rand has breached the 13.32 support level which is also the 30-day moving average which technically opens up the currency up to a move below 13.20 in the short run. However, RMB currency strategist John Cairns did voice his concerns over the Rand appreciating too fast in last week’s trading and giving up a lot of last week’s gains can be expected. “Based on where other high-yielding EM risk-currencies are trading, a reversal to 13.50 or even 13.60 on USD/ZAR would be justified.” The Rand’s run was also driven by a court ruling upholding corruption charges against President Jacob Zuma.

Strategists have been raising their projections for the Rand through 2017 as low inflationary pressures and the country’s longest run of trade surpluses in 6 years has helped narrow our current account deficit and has started to attract investors back to the Rand’s carry appeal. In the upcoming week we have South African inflation and retail figures coming out on Wednesday. Our 10 year government paper due in 2026 was down 5.5 basis points to 8.6%.

US inflation, or the lack thereof has been “the biggest surprise in the US economy this year” says Fed Chair Janet Yellen at an event in Washington on Sunday. She projected that consumer prices will pick up soon after a period of stagnancy however consumer prices failed to perform to the Fed’s target of 2%, bolstering views that readings below the Fed’s target may be structural rather than transitory and has led to speculation over a December Rate hike, something investors were almost certain about just one week earlier. However the overall feel from the Fed is that they are going to continue to normalize interest rates as they don’t see it being a problem for an economy that is growing and operating at nearly full employment. The hype over Trump’s massive tax cut and other fiscal stimulus has died down and is prompting policy makers to have a closer look at the potential inflationary impact of such decisions.

The Euro has been the best performing G10 currency this year, but of late the Euro’s momentum against the greenback has been undercut as markets have repriced US growth and interest rate projections higher leading to the euro surrendering nearly 4% in the last month.

Range for the Day:   13.25 - 13.40