MARKET NEWS 07/12/2020

Good morning

COVID-19 is the biggest challenge the world has faced in decades, and we are still some distance from putting it behind us. Perhaps then it wasn’t a good idea to organise Rage parties around the country where throngs of matrics spent a week showing scant regard for social distancing measures (as kids of that age are wont to do).  

These are the mid rates as at 7:25 today:

USD = R15.24

AUD = R11.32

GBP = R20.45

DXY = 90.74

EUR = R18.49

Brent Crude = $48.93 per barrel

Market News

• The Rand posted yet another weekly gain against the Dollar albeit the smallest gain in our recent run. We opened at R15.27 last Monday and closed for the weekend at R15.21, and have drifted slightly weaker to R15.24 at this morning’s open.  
• While any gain against the Dollar is welcome the modest size of last week’s move gives some cause for concern when considering that the Dollar Index fell by its largest margin since October. From a technical level the Rand has struggled to break below an important support level at R15.08, and as the world slowly lifts its gaze from an obsession around COVID headlines the Rand could come under pressure no matter what’s happening with the Dollar thanks to our significantly worsened fiscal situation.
• The following is from PoundSterling Live:  "Despite sovereign downgrades from both Moody’s and Fitch – both leaving South Africa on a negative outlook – South African sovereign bonds are rallying hard, pricing of default protection is dropping to the lowest levels since February and USD/ZAR is not far from its recent lows at R15.10. Undoubtedly the search for carry is driving these trends. But ZAR is one of the few EM currencies we dislike in 2021 with the debt overhang sadly a real strain for the country," says Petr Krpata, chief EMEA strategist for currencies and interest rates at ING.
• Whether we manage to break below R15.08 in the coming days/weeks remains to be seen but given that the Dollar Index touched a fresh 2 ? year low of 90.47 on Friday, and that the two key drivers in Dollar weakness are still very much in play, the chances of us testing this level seem strong, at least in the short term. The UK starts rolling out their Pfizer vaccine doses this week while we are expecting positive updates on Moderna’s emergency approval application, and on the fiscal support side a much worse than expected US jobs report on Friday underlines the urgency for US lawmakers to deliver the next relief bill. Vaccine and US relief headlines should be Dollar negative.  
• The following is from Reuters:  The Dollar started the week on the back foot on Monday after soft US jobs data only solidified expectations of a fresh economic package. Traders perceived the data as putting pressure on Washington to pass a new round of stimulus to help the coronavirus-battered economy, keeping overall risk appetite intact and capping the Dollar against riskier currencies. “When risk appetite is in a good place, like it is now, demand for the US Dollar is going to be weaker,” said Ray Attrill, head of foreign exchange strategy at National Australia Bank. “Further Dollar depreciation is baked in the cake.”
• Currency markets could see volatility emanating from last ditch Brexit negotiations as talks were paused on Friday thanks to their differences in fishing rights, fair competition and how to resolve future disputes could not be overcome. Each camp has regrouped over the weekend with Boris Johnson and EU president Ursula von der Leyden now scheduled to talk this evening, and if we get a deal this week the Pound should soar while no deal will be Pound negative.  
• Local market data today sees just our foreign exchange reserves at 8:00 but the rest of the week is packed with updates including our Q3 GDP print, consumer inflation rate, business confidence, retail sales, mining production and manufacturing production.  
• Possible USD mid rate trading ranges in the Rand today are R15.15 and R15.45.