Forex Market Report

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Good morning

The Rand started the shortened week off with a bang yesterday as we surged to levels last seen on the 4th of June. This was thanks to both local and international factors that supported emerging market currencies, and the Rand in particular.

These are the mid rates as at 7:30 today:

USD = 14.56
AUD = 10.01
GBP = 18.29
NZD = 9.51
EUR = 16.29
Brent Crude = $62.72 per barrel

Market News

  • It was a cracker start to the week for the Rand and our forex desk was extremely busy booking deals as the rate continued to improve!! We opened the day at R14.79 but any lingering concerns about another move lower were quickly dispelled as the Rand pushed on to an intraday best of R14.49 before closing at R14.52
  • There were many factors at play which pushed the Rand stronger yesterday but the main catalyst was ECB president Mario Draghi surprising the market when he confirmed that they would cut EU interest rates if inflation failed to pick up as previously hoped. EU market data has been dismal of late and so upward inflationary pressures are non-existent, and the now very real prospect of lower Euro interest rates makes Rand based assets more attractive given our comparatively high interest rate (carry trade) and we got a huge boost as a result.
  • The Rand was the best performing emerging market currency yesterday and the following excerpt is from MoneyWeb: “Further dovish commentary from ECB Chair Draghi has pushed the Rand to the top of the EM currency board this morning as the carry trade environment begins to lighten,” said currency analyst at Monex Europe Simon Harvey. “Although investments in South Africa continue to carry substantial idiosyncratic risk, for now the climate looks to be much more favourable as the woes of Eskom and divisions in the ANC party become more muted.”
  • Across the pond Donald Trump also did his bit to support the Rand as he announced a “very good” telephone call with President Xi and confirmed that they will have an extended meeting at next week’s G20 summit. Trump said that their respective trade teams would begin laying the groundwork for their meeting as early as today, and emerging market currencies were buoyed by this significant thawing in trade tensions.
  • The following is from Trump’s interview outside the White House, and while he tends to talk in circles the underlying message is positive: “I think we have a chance. I know that China wants to make a deal. They don’t like the tariffs, and a lot of companies are leaving China in order to avoid the tariffs. I think the meeting might very well go well, and frankly our people are starting to deal as of tomorrow. The teams are starting to deal. So we’ll see. China would like to make a deal. We’d like to make a deal, but it has to be a good deal for everybody.”
  • Things were also positive on the local front as Cyril Ramaphosa met with Eskom’s board yesterday to better understand their plight, and he confirmed that additional funds would be made available to ensure that the lights are kept on.
  • Local market data sees our consumer inflation print at 10:00 and only a slight increase from 4.4% to 4.5% is forecast. From the US we get the FED’s latest monetary policy statement tonight and a dovish tone has been priced into the market. This could leave the Rand exposed if the FED is not as forthcoming about interest rate cuts as the market is hoping for.
  • Possible USD mid rate trading ranges in the Rand today are R14.40 and R14.70

 

 

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