Daily Commentary - 20 October 2017

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

- USD / ZAR 13.6849 - EUR / ZAR 16.1557 - GBP / ZAR 17.9890 -

Economic Events:

20-Oct : US Existing Home Sales

Market Commentary:

The Rand seemed to have the upper hand against the Dollar in yesterday’s trading session. The pair failed to break the 13.60 resistance level and traded almost 1% firmer at 13.47 by late last night. However we open today trading at 13.62 as the Dollar again starts to flex its muscles. The Dollar is enjoying some strength due to two things. One being a safe haven asset play on the back of renewed tensions between the US and North Korea, and secondly, increased speculation over the next Fed chair. As we draw closer to the announcement of who will succeed Yellen, we can expect choppy trading conditions as investors start betting on the proposed hawkish or dovish tone we can expect from whoever is leading the polls. The Bloomberg dollar spot index has increased 0.3% to the highest in more than a week. Naturally the Euro got a bit of a hiding as well, weakening to 1.1790 by 9:00 this morning.

There is very little news of substance out today and we should expect the markets to remain cautious at the close of the week. US data on home sales may give investors a hint as to the state of the world’s largest economy this afternoon, but most traders will wait to hear Yellens potentially last speech on Sunday as to rate hiking cycles through 2018.

Political turmoil is starting to heat up once again in South Africa as Zuma’s manoeuvring gets more and more rogue. It’s gotten to the point where even his internal lieutenants are constantly being surprised by the decisions being taken. Its good news that Dudu Myeni has been ousted from SAA, the proposed reason for this is that the PIC is considering a stake in SAA. In more worrying news, yesterday, after Ramaphosa declared that he was “not captured”, puts speculation as to the role that he will be playing in the ANC in the near future. There is rumour that in the next reshuffle Ramaphosa will be ousted from his position in the ANC as there is too much for the Zuma faction to lose by Cyril becoming the next president.

Economists polled by Reuters expect Gigaba to announce a revenue shortfall of close to R40 billion due to poor tax receipts, likely pushing the budget deficit to 3.9% of GDP from a 3.4% estimate. This just adds to the longer term bearish rhetoric that many investors have for the Rand.

Our Range for the Day :    13.50   -  13.75