Daily Commentary - 18 July 2018

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

USD / ZAR 13.2822 - EUR / ZAR 15.4321 - GBP / ZAR 17.3737 -

Economic Events:

18 July: SA CPI Data - EC CPI Data - US MBA Mortgage Applications - SA Retail Sales

19 July: US Initial Jobless Claims - SA SARB Interest Rate announcement

20 July : EC ECB Current Account

Market Commentary:

The rand held steady this week and has remained relatively stable on Tuesday as market participants await this weeks` significant economic data releases. Statistics South Africa will release updated inflation data at 10:00 this morning, with markets expecting an increase to 4.8% for June. The Monetary Policy Committee will also have their meeting this week to determine the direction of local interest rates. According to a Reuters poll of 25 economists, the South African Reserve Bank is expected to keep rates unchanged at 6.5% on Thursday. “That would diminish the rand’s carry-trade appeal and push it back towards the 13.50 mark, traders said, with the trade conflict between Washington and Beijing continuing to temper global risk demand” (source: Moneyweb). From a less formal perspective, the rand is undervalued against the US dollar by 57.9%, according to the latest Big Mac Index that uses purchasing-power parity to evaluate currencies` relative value based on prices of identical goods and services in any two countries (Source: Fin24).

In the US market, the dollar index which tracks the greenback against a basket of other major currencies, traded up slightly after the Federal Reserve adopted a more optimistic outlook. “Federal Reserve Chairman Jerome Powell stuck with an upbeat assessment on the U.S. economy while downplaying the impact of global trade risks on the outlook for rate rises” (source: Reuters). Market participants are expecting a further two interest rate hikes this year as the US moves away from the easy monetary policy that followed the financial crisis. The net US dollar position is currently long as international markets continue to build bets on dollar strength.

In the European and UK markets, Brexit fears continue to overshadow the slowly improving economy after British Prime Minister Theresa May marginally passed her plans to leave the European Union. According to an article published by The Times newspaper, she also “threatened rebel lawmakers in her Conservative Party with a general election this summer if they defeated her Brexit plans on customs”. Although not highly probable, the pound continues to trade at multi-week lows as Theresa May`s influence gets drawn into question and investors brace for the impact of a potential hard-Brexit.

Our Range for today: R13.1800 – R13.4000