Daily Commentary - 23 August 2017

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

- USD / ZAR 13.2445 - EUR / ZAR 15.6004 - GBP / ZAR 16.9715 -

Economic Events:

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 South African rand slowly regained traction on Tuesday, as its emerging market peers held their own against a firmer dollar. Markets are suffering from a lack of volume as traders hold-off in anticipation of the imminent CPI data. Following the unexpected cut in benchmark lending rates in July where the SARB cited slowing inflation and weak growth, the upcoming CPI data could provide clues on the next interest rate decision  in future policy meetings. Nedbank analyst Reezwana Sumad said that, although the rand managed to post gains on Monday, 13.2000 remained a “technically significant” mark against the dollar. Compared to the rand`s emerging market counterparts with significantly better growth outlooks, it still remains an attractive carry-trade opportunity as investors try to escape the low-yield environment abroad. On a global front, economic data has been lacking and provided little effect on markets. In recent weeks, a report by Moody`s highlighted South Africa`s obstacles to growth as government debt levels move beyond control.

Markets will remain cautious ahead of the central bankers conference in Jackson Hole this week, as investors await clues surrounding future monetary policy and interest rate movements. "Ahead of Jackson Hole...investors have started to reduce their short dollar positions," said Heng Koon How, head of markets strategy for United Overseas Bank in Singapore. Investors are awaiting speeches from Janet Yellen, Chair of the US Federal Reserve, and Mario Draghi, President of the European Central Bank, however any significant policy announcements may be very unlikely. The US dollar slumped during the start of the week amid the North Korean geopolitical tensions. The US dollar also did not provide much excitement on Tuesday, despite the stock market rally ahead of the Jackson Hole meeting. The Jackson Hole meeting, along with the US Federal Reserve`s reluctance to hike interest rates has caused the dollar to slightly weaken.

ECB minutes have revealed that the euro`s recent strength against the US dollar has provided some reason for concern. President Mario Draghi will refrain from using language that could potentially excite markets in his speech this Friday at the economic symposium in Jackson Hole having been scarred by his recent experience at another central banking conference in Portugal, analysts said. The ECB has been quite clear that there will be no change in policy stance until the next meeting. This has been communicated by Mario Draghi himself at the last meeting and also on the ECB's twitter feed. With bullish bets on the euro at a near five-year high, according to latest positioning data, some investors think the euro's strength may likely fade given the central bank's recent cautious stance about the currency.

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