Daily Commentary - 26 January 2018

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

- USD / ZAR 11.8550 - EUR / ZAR 14.7964 - GBP / ZAR 16.9002 -

Economic Events:

26 Jan : UK GDP - US GDP ; Durable Goods Orders

Market Commentary:

The Rand has started to test 11.80 against the Greenback where we have seen some support – for now. Rand bulls still hold the upper hand coming into the close of the week but the question needs to be asked, how much further can this rally go? There are four drivers of the Rand’s push below the key R12/$ level being the political outlook, commodity prices, investor sentiment and of course the Greenbacks weakness.

Things are starting to look up for SA politics with Ramaphosa saying all the right things in Davos about how corruption’s days in SA are limited. Moody’s investor service is now said to be less likely to lower the nation’s credit rating when it reviews its assessment in March according to the UBS group. However we still need to get through the budget that is due on the 21st of February. Our political positioning may be looking up but SA is still printing lacklustre economic data as Debt/GDP continues to rise.

Commodity prices have boomed over the last seven months that’s helped narrow SA’s current account deficit narrow to 2.3% of GDP. Investor sentiment has naturally started to look up as well after Ramaphosa won the ANC elective conference back in December. After investors dumped around R47 billion of SA stocks in 2017, foreigners are buying JSE listed stocks at the fastest pace on record since the beginning of 2018. This has helped the benchmark index to an all-time high led by the shares of companies that depend on the local economy such as banks and large retailers.

Lastly we have the Dollars weakness which the Rand has wasted no time in taking advantage of. The Trump administration has sent confusing signals about currency policy, the net result being volatility and weakness for the Greenback. President Trump has stated that he wants a strong dollar while the Trump administration continues to argue that many other countries, China being top of the list, should allow their currency to appreciate, which is just another way of saying that the Dollar should weaken. This contradiction has caused investors to scratch their heads over what the Trump administration actually wants to happen to the Dollar and has caused volatile trade, especially in EUR/USD.

Figures today

GB GDP growth

US GDP Growth

US Durable Goods Orders

Our range for the day: R11. 78 – R11.95