Daily Commentary - 24 April 2018

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

- USD / ZAR 12.3013 - EUR / ZAR 15.0006 - GBP / ZAR 17.1300 -

Economic Events:

24 April : GE IFO Business Climate - US Conf. Board Consumer Confidence

25 April : SA BER Business Confidence

26 April : SA PPI Data - EC ECB Main Refinancing Rate - US Durable goods orders

27 April : UK GDP - EC Consumer Confidence - US GDP, University of Michigan Sentiment

Market Commentary:

On Monday, the rand started the trading week off on the backfoot after significantly weakening by almost 2% against the US dollar. The rand is currently trading at a three-month low against the dollar as a risk-off sentiment dominates the current market. We have enjoyed significant strength since the start of the year, but have become increasingly range-bound over the last few weeks with many investors speculating about the direction of the potential breakout. Our currency is expected to remain highly volatile over the short-term, and will take most of its direction from the US dollar in the absence of any significant economic events locally.

In the US market, “the dollar set a three-month high against a basket of currencies, having gained a boost as the U.S. 10-year Treasury yield climbed toward the psychologically key 3 percent level” (source: Reuters). This has been largely attributed to a combination of rising inflation and oil prices, along with government debt supply concerns. Inflation has remained relatively low over the past few years, but the corporate tax cuts proposed by President Trump could stimulate the US economy and raise the general price levels, which in turn could lead to higher interest rates. Tensions between the US and China, the world`s two largest economies, have since eased along with the nuclear threat from North Korea. The stronger dollar has put emerging market currencies across the board under significant pressure. However, the question remains on the sustainability of the US dollar rally.

In the European market, the euro weakened slightly despite stable business activity across the euro-zone. “The euro had enjoyed a strong rally until February before finding itself stuck in a trading range with the dollar after the European Central Bank cautioned investors expecting it to raise rates sooner than expected” (source: Reuters). In the UK market, the pound remains fragile following comments that signalled a reduced likelihood of an interest rate hike in the coming months. “With no breakthrough in sight for the Irish border issue and first-quarter GDP data due Friday, foreign exchange markets are braced for further weakness in the pound in a month which has historically proved to be supportive for the British currency” (source: Reuters).

Our Range for the day:  R12.2100 - R12.3800