Daily Commentary - 17 May 2018

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

USD / ZAR 12.4796 - EUR / ZAR 14.7228 - GBP / ZAR 16.8476 -

Economic Events:

17 May : US Jobless Claims

18 May : EC ECB Current Account ;Trade Balance

Market Commentary:

Since the end of 2017, the “Ramaphosa effect” left market participants scratching their heads on the extent to which the rand could potentially strengthen in the coming year. However, the rand has come under increasing pressure in the more recent past as attention has been diverted to foreign factors. Despite the promise of new political leadership and stronger economic growth, there isn`t much more optimism that can be priced into the rand. In the absence of domestic drivers, the rand has been reacting sharply to swings in global risk sentiment. Emerging markets across the board have fallen victim to the rising US treasury yields. “Rising Treasury yields have enhanced the dollar’s appeal and also raised global borrowing costs - a blow for some currencies experiencing slower economic growth at home and in some cases political strife” (source: Reuters).

In the US market, the dollar traded slightly firmer with the dollar index losing 0.2% against a basket of six major currencies. The rising US treasury yields are now sitting at 3.108%, well above the 3% psychological level that sent the dollar surging. The dollar is expected to find further support as the US and China start trade talks today intended to avert a damaging tariff war (source: Reuters).

In the European market, the common currency has weakened by almost 1% to a five-month low over the past week as Italian politics continue to disrupt sentiment in the eurozone. “Political uncertainty in Italy, where populist parties have jostled to forge a common platform in a bid to lead the next government, have been a major drag on the euro. The euro slid to the five-month low on reports Italy’s anti-establishment 5-Star Movement and anti-immigrant League may ask the European Central Bank to forgive 250 billion euros of debt as the parties worked to draft a coalition programme” (source: Reuters).

In the UK market, the “Sterling fell on Wednesday back towards its weakest level of the year amid fresh worries about Britain’s Brexit negotiations, a new leg higher in the dollar’s rally and after relatively modest UK wage growth earlier in the week. A rally in the dollar and slashed expectations for British interest rate rises have caused what had been one of the best performing major currencies to give up all its 2018 gains” (Source: Reuters).

Our range for today : R 12.3000 - R12.6000