Daily Commentary - 21 September 2018 | Merchant West

Daily Commentary - 21 September 2018

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

USD / ZAR 14.2873 - EUR / ZAR 16.83 - GBP / ZAR 18.9033 -

Economic Events

21 September: EC Eurozone PMI Data - US PMI Data

Market Commentary:

The rand settled in a less volatile trading range as market participants held off on positions ahead of key announcements yesterday. “South Africa’s rand, another heavyweight EM currency battered in recent months, was up 1.5 percent at 14.45 per dollar as markets geared up for a 1300 GMT central bank interest rate decision, and after the government said it had approved a new mining charter (source: Reuters). The announcement arrived well within expectations as the SARB opted to keep interest rates unchanged at the current 6.5% level and adopted a more hawkish rhetoric, following a narrowly divided MPC meeting. The interest rate decision appears to have been a tough balancing act and economists have emphasised that an eventual hike is becoming increasingly more probable in the near-term. The SARB has also mentioned that the weaker local currency and stronger inflationary pressures have fallen under their radar. Today, President Cyril Ramaphosa will unveil a stimulus package that he hopes will kick-start South Africa’s lagging economy, according to an article published by Fin24.

In the US market, the dollar has been drawing significant benefit from its status as a popular safe-haven currency as the trade dispute escalated. However, its appeal seems to be fading as markets deliberate the severity of the potential economic outcomes. “The index has fallen more than 1 percent this week, with investor flows being diverted from the greenback to other currencies including emerging market ones amid an ebb in U.S.-China trade war concerns” (source: Reuters). The dollar has recently been a determining factor for the direction of other currencies, and led to major swings in risk sentiment. Despite losing some ground, the dollar remains strong and could easily derail the newfound emerging market appetite. Also, the interest rate trajectory in the US will soon enter the forefront. “Fed officials have telegraphed a likely quarter-point rate increase when they meet on Tuesday and Wednesday next week, and investors expect that, plus another in December” (source: Reuters).

In the European market, the euro also strengthened along with other major currencies as money left US dollar assets, despite weaker than expected consumer confidence figures. Considering the stronger euro and pound, Brexit still remains the key narrative and failure to close a deal before reaching the looming deadline could pose significant risks. “The closely-watched summit of the European Union produced little progress on the thorny issue of trade and the Irish border. EU leaders have warned British Prime Minister Theresa May that they are ready to cope with Britain crashing out of the bloc if she does not compromise” (source: Reuters).

Our range for the day : R14.15 - R14.45