Daily Commentary - 25 July 2018

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

USD / ZAR 13.2567 - EUR / ZAR 15.4670 - GBP / ZAR 17.4331 -

Economic Events:

25 July: US MBA Mortgage Applications

26 July: SA PPI - EC ECB Main Refinancing Rate

27 July : US GDP ;University of Michigan Sentiment

Market Commentary:

Local currency front:

South Africa's rand weakened against the dollar in early trade on Monday, with the currency expected to take direction from global market moves in the absence of local factors. At 08h38, the rand traded at 13.4500 per dollar, 0.41 percent weaker than its close on Friday. Unlike in 2017, the primary driver of the USD/ZAR pair year-to-date has been moves in the greenback, with domestic factors playing a secondary role," Rand Merchant Bank analysts Mpho Tsebe and Kim Silberman wrote in a note."We expect the mid-point of the USD/ZAR trading range to be 13.50 to the end of 2018, with the range between 13.00 and 14.00." The dollar slumped against major peers on Monday, knocked lower by U.S. President Donald Trump's comments on the greenback's strength.

Currency front:

The dollar slumped against the yen and other major peers on Monday after U.S. President Donald Trump expressed discomfort with the greenback's strength and global finance leaders ended a weekend meeting with little consensus on how to resolve multiple disputes over U.S. tariff actions. The dollar extended losses after CNBC reported on Friday that Trump was worried the Federal Reserve will raise interest rates twice more this year. Trump said the Fed's policy tightening and the strong dollar could hurt the U.S. economy.

The dollar index  a measure of its value against a basket of six major currencies, was down 0.2 percent at 94.251 on Monday, slipping further from a one-year high of 95.652 touched on July 19.Against the yen, the dollar fell for the third day to a low of 110.85 yen, its weakest level since changing hands at 110.77 yen on July 11. It was last off about 0.4 percent at 111.06 yen. The yen was also driven up after Reuters and other media reported that the Bank of Japan is actively discussing changes to its policies.

International front:

Global finance leaders called on Sunday for stepped-up dialogue to prevent trade and geopolitical tensions from hurting growth, but ended a two-day G20 meeting with little consensus on how to resolve multiple disputes over U.S. tariff actions.

The finance ministers and central bank governors from the world's 20 largest economies warned that growth, while still strong, was becoming less synchronized and downside risks over the short- and medium-term had increased. “These include rising financial vulnerabilities, heightened trade and geopolitical tensions, global imbalances, inequality and structurally weak growth, particularly in some advanced economies," the G20 finance officials said in a communique. “We ... recognise the need to step up dialogue and actions to mitigate risks and enhance confidence," the communique said. This marked a strengthening of language compared to their previous statement issued in March, in which they simply "recognise the need for further dialogue."

The weekend talks in Buenos Aires came at a time of escalating rhetoric in the trade conflict between the United States and China, the world's largest economies, which have so far slapped tariffs on $34 billion worth of each other's goods.U.S. President Donald Trump raised the stakes on Friday with a threat to impose tariffs on all $500 billion of Chinese exports to the United States unless Beijing agrees to major structural changes to its technology transfer, industrial subsidy and joint venture policies’.U.S. Treasury Secretary Steven Mnuchin told a news conference on Sunday that he had had no substantive discussions on trade with China's finance minister, Liu Kun, at the G20 gathering, engaging mainly in "chit-chat.". "Any time they want to sit down and negotiate meaningful changes, I and our team are available," Mnuchin added.

Our range for today : R 13.3500 – R13.5500