Daily Commentary - 19 June 2018

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

USD / ZAR 13.8443 - EUR / ZAR 16.0360 - GBP / ZAR 18.2876 -

Economic Events:

19 June: EC Current Account - US Housing Starts

20 June : SA CPI Data - US MBA Mortgage Application ;Current Account Balance ; Existing Home Sales

21 June : SA Current Account Balance - UK BOE Rate Decision - US Jobless Claims - EC Consumer Confidence

22 June: EC Eurozone PMI  - US PMI

Market Commentary:

The dollar moved higher in yesterday’s session haven currency, as the US-China trade conflict has begun to heat up again, with trade relations between the US, Europe and Canada having already taken a hit earlier this month.

Despite this, the USD has held up well and has continued to strengthen, in contrast to price action last year when the currency tended to weaken during periods of rising trade tension.

The dollar index against a basket of majors up at 94.756. The common currency, the euro, was also victim to the firm dollar, registering a low of $1.1566 against the dollar. The British pound fell 0.25% to $1.3242 against the USD, almost its 7-month low as the market awaits the BoE meeting on Thursday, with the market receding expectations of a rate hike by the BoE this year. Source BNP

Locally  

It was a dim start to the week for the South African rand, with the local unit spiking above the key R13.50/$ resistance level and accelerating to a high of R13.72/$ intraday, this is the highest level we have seen in 6 months.

EM currencies, along with the ZAR, suffered a broad based sell-off as the dollar gained given lingering global concerns following the US-China trade wars. It all started as if the move higher had topped out until global concerns and downbeat risk sentiment saw the beloved currency resume its weakening trend and slide over 2%, testing a high of R13.91/$ in early trade this morning.

Global developments continue to weigh on the local unit, with the latest round of trade tariff retaliations between the US and China dragging down EMs as investors return to the safe haven comfort of the greenback.

How long this trade spat plays out remains a key concern for EM currencies and is keeping the market on the edge. For the local unit, adding to the anxiety is the local data print this week, CPI and current account numbers, that could push the ZAR above the R14.00/$ technical level.

We start the day with a spike above 13.90, which I think was largely driven by algorithms, expecting some retracement as profit taking kicks-in. Source ABSA

Our range for the day: R13.6500 to R14.0000