MARKET NEWS 12/10/2020

Good morning

The past few weeks and months have seen the Rand move primarily on international developments and while this will always be a factor the next two weeks will see local headlines come sharply into focus. The week ahead is packed with market data but it is Cyril Ramaphosa’s address on Thursday that will steal the limelight.  

These are the mid rates as at 8:05 today:

USD = R16.49

AUD = R11.92

GBP = R21.50

DXY = 93.06

EUR = R19.49

Brent Crude = $42.23 per barrel

Market News

• Friday’s report saw the Rand open at R16.55 to the Dollar with commentary saying that the Rand would do well to reach Monday’s intra-week best level of R16.37, well we almost got there!!! Friday afternoon saw us twice hit R16.41 before falling back to R16.46 at the close.
• Dollar weakness was our friend on Friday as twin forces saw the Dollar Index fall to 92.99, its lowest level since the 21st of September. These included the market becoming increasingly certain that not only will Joe Biden win the US election but that Democrats will take control of the Senate, while the second source of Dollar weakness was Donald Trump proposing a $1.8trn stimulus package in the hope that it would be accepted by Republicans (wanting $1.6trn) and Democrats (wanting $2.2trn). The prospect of immediate stimulus was Dollar negative hence the Dollar’s dip on Trump’s offer while the prospect of a Biden victory would mean much larger stimulus measures after the election, also Dollar negative.  
• The following is from Reuters and talks to improved US/China relations under a Biden administration which is also good for emerging market currencies like the Rand:  The Dollar fell to three-week lows on Friday on optimism that a deal for new U.S. stimulus would be reached, and as investors bet that Democrat Joe Biden is more likely to win the US presidency and offer a larger economic package. Rising expectations of a Biden victory has also boosted appetite for currencies that have been hurt by the trade war between Washington and Beijing, with the Chinese currency the biggest beneficiary.
• Unfortunately with the US election in our immediate future Republicans and Democrats have dug their heels in with both camps rejecting Trump’s $1.8trn stimulus offer over the weekend. Republicans are concerned about layering excess debt on top of their already multi-trillion Dollar hole while Democrats are trying to look like the nation’s saviours in a post COVID recovery. Ultimately there is still no agreement on US stimulus and the Dollar has strengthened sending the Rand to R16.55 in early trade this morning.   
• Locally there are three main flashpoints that are keeping investors on their toes, each with the ability to send the Rand in either direction. First came confirmation over the weekend that a bill allowing for land expropriation without compensation will be submitted to parliament for approval. The uncertainty around this concept has spooked investors for a long time (Rand negative) and so while government is pushing ahead we could see a positive impact once the market knows exactly what land is involved and how redistribution will happen.  
• The other two local flashpoints come from Cyril Ramaphosa this Thursday and Tito Mboweni next week Wednesday. Ramaphosa will be delivering government’s economic recovery plan on Thursday which is said to be a comprehensive strategy approved by public, private and labour stakeholders. This infrastructure driven plan aims to boost economic activity while lowering employment and inequality measures, and if accepted by the market as viable this should be Rand positive. Then next week Mboweni delivers his medium term budget speech which could be a challenging day for the Rand.  
• Local market data today sees our August manufacturing production which is forecast to show a fourth straight month of expansion.  
• Possible USD mid rate trading ranges in the Rand today are R16.35 and R16.65