Daily Commentary - 21 August 20181

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

USD / ZAR 14.3650 - EUR / ZAR 16.5621 - GBP / ZAR 18.4242 -

Economic Events:

21 August: No data of real importance

22 August: SA CPI Data - US Existing Home Sales

23 August: EC Germany PMI Data ;Euro Zone PMI Data - US Initial Jobless Claims -EC Consumer Confidence Figures

24 August  : US Durable Goods Orders

Market Commentary:

Local front - South Africa's rand firmed more than one percent in early trade on Tuesday, matching gains by its emerging market peers as criticism of Federal Reserve rate hikes by U.S. President Donald Trump hurt the dollar and revived demand for some risk assets. At 08h30 the rand was 1.1 percent firmer at 14.3700 per dollar, its firmest since Thursday, in what traders said was the beginning of a consolidation pattern with momentum indicators showing the unit was oversold. The rand crashed to a two-year low last week as the financial crisis in Turkey rattled sentiment towards emerging markets broadly, adding to concerns about the impact of the U.S.-China trade spat on global economic growth. With the Turkish markets closed for a religious holiday and anticipated talks between the United States and China seen lowering the temperature of the dispute, Trump's central bank comments were the main catalyst.

International front - U.S. President Donald Trump said on Monday he was "not thrilled" with the Federal Reserve under his own appointee, Chairman Jerome Powell, for raising interest rates and said the U.S. central bank should do more to help him to boost the economy. In the middle of international trade disputes, Trump in an interview with Reuters also accused China and Europe of manipulating their respective currencies. American presidents have rarely criticized the Fed in recent decades because its independence has been seen as important for economic stability. Trump has departed from this past practice and said he would not shy from future criticism should the Fed keep lifting rates. The president spooked investors in July when he criticized the U.S. central bank's over tightening monetary policy. On Monday he said the Fed should be more accommodating on interest rates. “I’m not thrilled with his raising of interest rates, no. I'm not thrilled," Trump said, referring to Powell. Trump nominated Powell last year to replace former Fed Chair Janet Yellen.

The Fed has raised interest rates twice this year and is expected to do so again next month with consumer price inflation rising to 2.9 percent in July, its highest level in six years, and unemployment at 3.9 percent, the lowest level in about 20 years. After leaving its policy interest rates at historic lows for about six years after the 2008 global financial crisis, the Fed began slowly raising rates again in late 2015. Trump said China was manipulating its yuan currency to make up for having to pay tariffs on imports imposed by Washington. "I think China's manipulating their currency, absolutely. And I think the euro is being manipulated also," Trump said. “What they're doing is making up for the fact that they're now paying ... hundreds of millions of dollars and in some cases billions of dollars into the United States Treasury. And so they're being accommodated and I'm not. And I'll still win."

Financial market analysts doubt current Fed policy makers are likely to be cowed by Trump's outbursts over their policy choices. Still, it might affect candidates for openings on the bank's seven-member board, said Guy LeBas, fixed income strategist at Janney Montgomery Scott in Philadelphia. Currently only three seats are filled. “I doubt these comments move the needle for Powell and his colleagues, but it certainly sends a strong signal to those candidates interested in vying for one of the Fed Board's many open seats: favor easy money policy or find another job," LeBas said

Our range for the day : R14.2500 - R14.6000