DAILY COMMENTARY - 31st August 2018 | Merchant West

DAILY COMMENTARY - 31st August 2018

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

USD / ZAR 14.6840 - EUR / ZAR 17.1300 - GBP / ZAR 19.0953 -

Economic Events:

31 August  : CH Manufacturing PMI - EC Unemployment rate - SA Trade Balance

Market Commentary:

Local front:

What were once clearly country-specific crises, well contained within their borders, are bleeding across the world. To stem the slide in its currency Argentina raised its key rate to a whopping 60% on Thursday, but the peso was still 30% weaker from Monday. Though Turkey is no closer to solving its many problems, it’s hard to see why the lira needed to fall 4% on Thursday. Explanations that this is due to the resignation of one of the central bank’s four deputy governors don’t convince — he’s only gone to take another government job. Similarly, there doesn’t seem to be any particular reason why South Africa’s rand or the Brazilian real needed to weaken about 3%. This looks like contagion. One emerging country’s problems have become other emerging countries’ problems, and it’s hard to see how to break the cycle. What’s really worrying is that this week’s gyrations don’t look to have been driven by dollar strength — on a trade-weighted basis, the greenback is lower on the week.

Marcus Ashworth from Bloomberg

International front: 

The dollar edged up against its peers on Friday, finding support as the latest episode of U.S.-China trade tensions dulled investor risk appetite, with weakness in emerging market currencies also helping lift the greenback. The dollar index against a basket of six major currencies was a shade higher at 94.748. The index had nudged up about 0.15 percent overnight, ending a four-day losing streak. The greenback, which tends to attract safe haven bids in times of market turmoil and political tensions, drew its latest swell of support as investors braced for the next round of the U.S.-China trade conflict. Bloomberg News reported on Thursday that U.S. President Donald Trump is prepared to quickly ramp up a trade war with China and has told aides he is ready to impose tariffs on $200 billion more in Chinese imports as soon as a public comment period on the plan ends next week. It is an ongoing trend to buy the dollar on the trade friction theme, which has negatively affected emerging market currencies and in turn fuels the dollar's rise," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

"The euro has also taken hits, due to the euro zone's perceived exposure to emerging market economies." The euro was down 0.1 percent at $1.1662  after losing about 0.3 percent overnight when a rise in Italian government bond yields put additional pressure on the currency. Italian bond yields spiked on Thursday amid concerns that tax cuts and welfare spending proposed by the country's ruling coalition could worsen its debt situation. The Italian/German bond yield spread reached its widest since 2013 as a result. The Turkish lira weakened for its fifth day, last down 1.5 percent at 6.7495 per dollar and creeping back towards the record low of 7.24 per dollar plumbed on Aug. 13.

Reuters By Shinichi Saoshiro

Our range for the day : R14.6000 - R14.9000