Daily Commentary - 22 August 2017

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

- USD / ZAR 13.2049 - EUR / ZAR 15.5465 - GBP / ZAR 16.9769 -

Economic Events:

22-August: SA Leading Indicator - US House Price Purchase Index

23-August: EU Markit Manufacturing PMI - SA CPI Data - US Markit  Manufacturing PMI ;New Home Sales

24-August: UK GDP - US Initial Jobless Claims ; Existing Home Sales

25-August: GE GDP - US Durable Goods Orders

Market Commentary:

The rand surrendered most of last weeks’ gains as it weakened yesterday. The upcoming US Federal Reserve meeting, as well as local inflation data being released later during the course of the week, has forced traders to practice with caution. Despite the rand starting its trading week on a downward trend, it still closed almost 5 cents higher against the US dollar than at the same time on Friday. Investors hunting for carry trades in search of higher yields were largely responsible for the rand`s strength in the previous week. Investors also held off in anticipation of the local CPI data that is due to be released today, which could justify expectations around the SARBs next interest rate move. Statistics SA will release CPI data for July during the course of today, with the market expecting CPI to slow to 4.6 percent year-on-year in July from 5.1 percent in June. According to a poll done by Reuters on Friday, the market expects to see further interest rate cuts in November and September respectively. On the JSE, mining shares remained amongst the top performers as commodity prices surged and risk aversion led investors to safer havens.

The Trump administration`s ability to implement and enforce its various agenda`s has not yet done the US dollar any favours, as renewed investor concerns saw to an ailing greenback. However, political fears were not the only force to hamper the dollar, as low US inflation data and uncertainty surrounding future interest rate hikes by the US Federal Reserve also contributed. The US currency has seen four consecutive trading sessions of weakness. The US dollar has kicked off this week with a slight turnaround as the US dollar index which measures the US dollar against a basket of six major currencies, inched higher by 0.1%. Traders are shifting their focus towards monetary policy outlook leading up to the central bank conference to be held in Jackson Hole, Wyoming this week. All eyes will be on Janet Yellen to provide clues and fuel expectations regarding the next interest rate move. If Yellen's speech increases market expectations that the Fed will raise interest rates in December, that could prompt investors to unwind bearish bets against the dollar, and lend the greenback some support, said Stephen Innes, head of trading in Asia-Pacific for OANDA in Singapore.

The euro, on the other hand, came back with a significant rebound from its last low to trade 0.3%  against the US dollar. The euro traded well below its almost three-year high seen earlier this month. Markets are cautions of the euro`s recent double-figure gains as the ECB remains wary of tapering its stimulus program. Year-to-date, the euro comes in at 11% stronger, the strongest currency amongst the G10 group of countries. Markets are awaiting key speeches by ECB president Mr Draghi, as well as US Federal Reserve chair Janet Yellen at Jackson Hole later this week. It's hoped the central bank chiefs will give an update on the direction of monetary policy in the eurozone and the US. Last week, it was reported that ECB President Mario Draghi will not deliver a new policy message at a US Federal Reserve conference in Jackson Hole this week, which tempered expectations for the ECB to start charting the course out of stimulus. But traders are not taking any chances. Sterling strengthened by around 0.18 per against the euro to 1.095 on Monday morning, and was flat against the US dollar at around 1.287 on Monday morning.

Our range for the day : R13.14 – R13.28