18 May 2018

What we know

 

Local events in South Africa this week continue to be outshone by developments abroad. We saw positive retail sales out of the US for a consecutive month in April, oil prices reaching nearly $80/barrel following Trump’s aggressive stance on Iranian sanctions as well as the emerging market sentiment spillover driven by Turkey and Argentina.

All of the above provided the catalyst for the ZAR to give up most of it’s gains seen towards the end of last week. Indeed, last week we wrote that a “12.30 – 12.70 range remains most likely in the near-term”, yet by late Friday afternoon the market had (in our opinion) overshot this with the ZAR trading sub 12.20 – Tuesday saw this unwind completely as we gave up 2.5% at one stage to trade as high as 12.65.

The ZAR rallied to R12.40 on Wednesday, somewhat unexpectedly given significant ZAR capital outflows data coming out. However this was short lived, as it has continued to weaken throughout the remainder of the week, reaching R12.55 at the time of writing with the currency strongly influenced by international events and developments.

 

What others say

 

14 May 2018

Eyewitness News – #RANDREPORT: Rand Rides Risk Sentiment Higher

“Traders said the rand continued to respond to external factors on Monday in the absence of major local data releases, though unemployment and retail sales data are scheduled for later this week…Investors will scrutinise those data points for signs South Africa’s economic recovery has continued to build momentum in the wake of President Cyril Ramaphosa’s election as head of state in February.”

News24 – Rand tanks more than 2% on US retail sales data

“At the moment bulls still believe that a firmer USD is obtainable because of the interest rate differential,” Umkhulu Consulting’s Adam Phillips commented.

Reuters – North Korea may consider summit with Trump, suspends talks with South Korea

“If the U.S. is trying to drive us into a corner to force our unilateral nuclear abandonment, we will no longer be interested in such dialogue and cannot but reconsider our proceeding to the DPRK-U.S. summit (sic),” Kim Kye Gwan said, referring to the North by its official name, the Democratic People’s Republic of Korea.

16 May 2018

ETM Analytics – ZAR Insight: Short USD clear-out continues, an opportunity for exporters 

“…ETM proprietary analytics on ZAR still show that another move back below the 12.0000 handle is possible once the current market clear-out has completed and investors start to rethink their expectations on US rates. For now, exporters should use this ZAR weakness as a nice opportunity to lock in some more attractive rates through the next 6-9 months by taking advantage of the sell-off and forward rates.”

ABC News – US ‘still hopeful’ Donald Trump will get his summit with Kim Jong-Un after North Korea threatens to pull out

“We support the improvement of North-South [Korean] relations, the promotion of dialogue between North Korea and the US, denuclearisation on the peninsula and North Korea’s development of its economy and improvement of its people’s livelihood,” Mr Xi was quoted as saying by state broadcaster CCTV.

17 May 2018

Bloomberg – Foreign exodus has barely budged the rand. Here’s why

“It’s “somewhat strange” that the rand would strengthen and “would suggest there must be some other inflows not captured in the daily bond and equity flows data,” Gullberg said. “That, and the rand’s relative resilience over the past few weeks compared with peer currencies, would suggest there is still belief in the ability of Ramaphosa to implement change, albeit very gradually.”

What we think

 

With limited market moving data available, eyes will be on fellow emerging markets. Turkey’s central bank indicated on their website “The Central Bank of the Republic of Turkey is closely monitoring the unhealthy price formations in the markets. Necessary steps will be taken, also considering the impact of these developments on the inflation outlook.” The problem with this statement is that President Erdogan himself has recently told global fund managers that he intends keeping interest rates lower, while fighting inflation, as well as being more involved in the process to so – such meddling will not help investor sentiment!

Elsewhere, trade-talks between the USA and China will be key, particularly in light of the recently thawed relations between the USA/South Korea and North Korea which appear to be at risk of freezing over yet again.  And, while somewhat relegated to the background this week, the continuing developments of the Iran deal provide more potential storm clouds of their own.

Our range remains unchanged from last week, with 12.30 – 12.70 likely to hold in the short-term.

 

---

Have a great weekend!