Daily Commentary - 20 November 2017

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

- USD / ZAR 14.0441 - EUR / ZAR 16.4852- GBP / ZAR 18.5508 -

Economic Events:

20-Nov: No data of real importance

21-Nov: US Existing Home Sales

22-Nov : SA CPI Data - US Durable Goods Orders ; Univ Michigan Sentiment

23-Nov : EU PMI Data - SA SARB rate announcement

24-Nov : SA Credit rating review by Mood's and S & P Global

Market Commentary:

South Africa's rand raced to a two-week high against the dollar on Friday as the greenback came under pressure after a report that investigators probing possible Russian interference in the U.S. election had subpoenaed President Donald Trump's election campaign for documents. Bourse heavyweight Naspers helped push South African stocks higher.

At 17h11, the rand was trading at 14.0450 per dollar, 0.8 percent firmer than its close on Thursday. The currency had touched a session high of 13.9575, its firmest since Nov. 2. "Basically the dollar weakness is making us look good," said currency strategist at IG Markets Shaun Murison. "The dollar has been on the back foot following the re-emergence of concerns relating to Russia’s involvement in U.S. elections. "However, investors in South African assets remained nervous ahead of credit ratings reviews on Nov. 24.

"With investor jitters rising ahead of South Africa rating review by S&P Global and Moody’s agencies this week, further downside could be on the cards, "Lukman Otunuga, research analyst at FXTM, said in a note. A one-notch downgrade of the local-currency rating by both agencies could trigger forced selling of up to $12 billion of the country's bonds, as well as triggering a heavy selloff of the rand. Yields on government bonds were lower, with the benchmark 10-year paper, ZAR 186 due in 2026 down 2 basis points to 9.34 percent.

On the International front:

The euro hit a two-month low against the yen on Monday, as German Chancellor Angela Merkel's efforts to form a three-way coalition government failed, stoking political uncertainty in the euro zone's largest economy. The euro slid broadly in early Asian trade after the break down of the German coalition talks, but later pared some of its losses. Merkel's conservative bloc, which won the largest proportion of votes in the September election, will probably be able to form a minority government, said Steven Dooley, currency strategist for Western Union Business Solutions in Melbourne.

The euro fell 0.5 percent against the dollar to $1.1735, pulling away from a one-month high of $1.1862 set on Wednesday last week. The euro's retreat helped support the dollar against a basket of six major currencies, with the dollar index edging up 0.3 percent to 93.968. "If you can't buy the dollar and you can't buy the euro, then the yen will strengthen, as you're seeing now," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

If the euro tumbles further versus the yen, that may spill over into the dollar, and open the way for the U.S. currency to test levels below 110 yen by year-end, Okagawa said. The near-term focus will be on how European markets react to the political developments in Germany, he added. On U.S. tax reforms, President Donald Trump predicted on Sunday that Senator Jeff Flake will oppose the Republican tax bill, but the senator's office says he has not yet made up his mind.

The Australian dollar hovered around a five-month through on Monday, while its New Zealand cousin was near its lowest in 1-1/2 years, as shrinking yield premiums over the U.S. dollar prompted investors to unwind carry trades. The Australian dollar was huddled at $0.7553 and nursing last week's losses of 1.3 percent. The New Zealand dollar stood at $0.6815, within spitting distance of Friday's $0.6781 which was the lowest since June 2016. The currency fell 1.6 percent last week.

The Aussie was thumped last week by surprisingly soft wage data which implied inflation will remain lukewarm in the medium term despite the recent strength in employment. The Reserve Bank of Australia (RBA) has also given a strong signal that interest rates in the country are set to stay at record lows for a long time to come. That has prompted the futures market to push out the likely timing of a hike in the 1.5 percent cash rate to early 2019. A couple of months ago, a move had been priced in for July next year.

"The AUD continues to find little love and this feels fair from a fundamental standpoint," said Chris Weston, Melbourne-based chief market strategist at IG. "Rallies in the AUD crosses should be sold this week, with little on the economic docket to drive shorts to cover with any great conviction," Weston added. Investors will keep an eye on the yield differential between Aussie and U.S. debt this week with the U.S. two- and five-year Treasury yields set to rise above those of Aussie government debt for the first time since 2000.

Our range for the day: R13.90- R14.20