Forex Market Report

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Good morning

The Rand has been largely driven by international factors over the past few weeks/months as our local events pale into comparison when considering the trade war, Brexit, Saudi bombings, etc. But that all changed yesterday as Eskom unexpectedly switched the lights off.

These are the mid rates as at 7:45 today:

USD = 14.92
AUD = 10.12
GBP = 19.11
NZD = 9.37
EUR = 16.52
Brent Crude = $59.24 per barrel

Market News

  • Things could be a lot worse if it wasn’t for a weak Dollar, this as we opened at R15.05 yesterday but surprisingly managed to claw back some ground to close at R14.94
  • Headlines have been dominated by the trade war and Brexit of late with the Rand taking almost all of its cue from these two events. We all know that Eskom is under massive financial strain, and Mboweni’s mini-budget speech this month is sure to focus on this hot ticket item, but we weren’t prepared for a surprise bout of Stage 2 load shedding which kicked in at 9am yesterday. The Rand was broadsided as we dropped by 1.1% to hit R15.0550
  • Eskom blamed the power cuts on 5 power stations going offline due to leaking boilers while an 8km conveyer belt supplying Medupi with coal from a neighbouring mine had broken down on Saturday. They have been running their open cycle gas turbines at full throttle since plus maxing out their hydro-electric plants, but with diesel levels dwindling and water levels running low these emergency measures are no longer enough to meet demand. Stage 2 load shedding continues today and is apparently with us for at least a week.
  • There’s no shortage of commentary on the threat and the timing of these power cuts but the following from Bloomberg sums it up well: “The announced blackouts should be a very strong incentive for the administration to urgently address prevailing issues at Eskom,” said Piotr Matys, a currency strategist at Rabobank in London. “It is absolutely critical that a comprehensive and credible restructuring plan is quickly implemented, not only to avoid more blackouts in the future that seriously undermine economic activity, but also to reduce the risk of South Africa being downgraded to junk by Moody’s.”
  • That we managed to break back below R15.00 is solely down to Dollar weakness as US retail sales dropped for the first time in seven months, and with the US consumer driving 70% of their GDP this strengthens the case for an interest rate cut by the FED on the 30th of October. US Treasury Secretary Steven Mnuchin also confirmed that US and Chinese trade teams are already working on the text for their “phase one” trade deal which allayed fears of this agreement breaking down.
  • Brexit faces a critical day as EU and UK negotiators have worked around the clock to secure a deal before the EU summit which commences later today. Reports suggest that they are extremely close, and the Pound is back to $1.28 after dropping to $1.19 a few weeks ago, and if a deal is agreed we can expect the Pound to continue gaining against the Rand.
  • No local market data today.
  • Possible USD mid rate trading ranges in the Rand today are R14.80 and R15.10

 

 

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