DAILY MARKET UPDATE - 07 FEBRUARY 2020 | Merchant West

DAILY MARKET UPDATE - 07 FEBRUARY 2020

treasury outsourcing

Merchant West Capital Markets

USD/ZAR 14.925| EUR/ZAR 16.3711 | GBP/ZAR 19.2867

Please feel free to contact us on the details below:

JHB: (011) 305-9500 | PTA (012) 742-8600 | CPT (021) 552-7007 

email: treasury@merchantwest.co.za

Produced for Merchant West by ETM Analytics

Market Commentary:

A break back above the R14.8000/dlr mark materialized for the USD-ZAR yesterday as the USD continued to surge higher, confirming the formation of a bull flag pattern for the pair and signalling a move higher for the USD-ZAR. The pair rose just under 1.0% on the session, reversing more than half of this week’s gains and placing the ZAR second from the bottom in terms of emerging m,arket currency performance on the day.

That said, most emerging market currencies struggled with the USD reaching fresh multi-month highs ahead, buoyed by a weaker euro as German industrial orders disappointed notably to the downside, implying that the global growth outlook remains fragile despite signs of stabilization.  Some dismal data on the domestic front did little to help the ZAR’s situation, however, with the SACCI business confidence index declining to 92.2 from 93.1. According to SACCI, this was the weakest January number recorded since 1993. While this is not surprising in the context of downward revisions to GDP growth and continuous load-shedding, it comes as a stark reminder of just how depressed confidence is amongst corporate South Africa and just how urgent decisive action is needed to restore business sentiment.  

Once again, this is what makes the upcoming budget arguably one of the most important in South Africa’s democratic history, expected to play an essential role in restoring business confidence and, by extension, investment in South Africa. Reforms that are likely to be viewed positively by the business community are those that attempt to alleviate the effects of skills emigration, bolster SA’s competitiveness in global terms, boost private sector participation and, importantly, ease the burden on the fiscus and consolidate debt levels. Whether or not there is the political will to implement such reforms remains to be seen, however. 

In the meantime, the ZAR will remain vulnerable to any shifts in risk appetite and bouts of dollar appreciation. Key for the dollar ahead of the weekend will be the official jobs report. If ADP data earlier this week is anything to go by, the US labour market is expected to continue its stellar performance from 2019, which will keep the USD supported and feed into the view that the Fed doesn’t need to cut rates further at this stage. Any signs that the market is slowly cooling at this late stage of the business cycle could, however, upend the dollar’s recent rally. Coronavirus concerns meanwhile continue to feature prominently, with newswires reporting that the death toll has now climbed above 637, with more than 30000 cases now confirmed and more cases abroad. This is likely to keep investors cautious. 

Expected Range for the Day: 14.85 - 15.00