MARKET NEWS 31/08/2020

Good morning

On Thursday afternoon the chances of the Rand posting a monthly gain against the Dollar were hanging in the balance. We had opened the month at R17.10 and despite a drop to R17.76 and subsequent recovery to R16.72 over the month we were back at R17.10 exactly. But Friday was a barnstormer for the Rand and it looks like we will canter in for a strong monthly gain come the close of business today.  

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

USD = R16.56

AUD = R12.18

GBP = R22.11

DXY = 92.33

EUR = R19.74

Brent Crude = $45.66 per barrel

Market News

• Choppy trade after Jerome Powell’s speech on Thursday was replaced with a runaway train on Friday, this as the Dollar plunged. We opened on Friday morning at R16.96 before powering to R16.56 at the weekend’s close. This is our best level since late July where we twice tried to break below R16.34 before retreating, and if we manage to breach that support this week then R16.20 would be our next target.  
• It would be great to attribute Friday’s move to Rand strength but in truth it was thanks to a shocking day for the Dollar. The market took a few hours to fully digest FED Chair Jerome Powell’s speech on Thursday, with the Dollar actually strengthening in the immediate aftermath, but the floodgates opened on Friday as the market latched onto the reality of US interest rates remaining close to 0% for many years to come and the Dollar felt the pain. The Dollar Index had jumped to 93.30 points on Powell’s comments but Friday saw a drop to 92.20, the lowest level for the index since April 2018, and the Rand gained close to 3% as a result.  
• The following is from BusinessDay and underlines the outsized market move on Friday, this as the FED is saying they won’t act until US inflation overshoots 2% but they have struggled to get inflation to even touch 2% over the past 10 years:  Investors are digesting the US FED chair Jerome Powell’s speech at the Jackson Hole economic symposium on Thursday. Powell said the central bank will aim for inflation to average 2%, adding that interest rates will remain at or near zero to support economic recovery after the coronavirus pandemic. Oanda market analyst Craig Erlam said: “In theory, by aiming for 2% average inflation, the FED should hold off a little longer before raising interest rates. Whether it does so to any significant degree is another thing. It doesn’t, however, have a great record of reaching its inflation targets.”
• With US interest rates likely to be anchored at 0% for an extended period analysts once again have their knives out for the Dollar. Writing off the Dollar is a brave call but the following is from Reuters:  The Dollar was poised to register its fourth consecutive monthly decline on Monday, its longest streak since the summer of 2017. “It seems clear to us that we are at the start of a multi-year period of Dollar decline from very elevated levels,” Societe Generale strategists Kit Juckes and Olivier Korber wrote in a forecast note. “Our doubts, about whether the Dollar can suffer a broad-based fall in the midst of risk aversion, global recession and particularly emerging market weakness, have been blown aside by the FED.”
• The FED has taken all the headlines over the past few days, and with a number of FED members speaking this week their comments will be scrutinised for further clues on their new inflation policy, but it must be remembered that COVID-19 is still out there. Usually associated with bad news and Rand weakness we actually had a good COVID headline yesterday as Dr Anthony Fauci, Director of the US National Institute of Allergy and Infectious Diseases, said it is conceivable that we will hear about a safe and effective vaccine as soon as November. Fauci is a respected expert who had previously been sceptical about a near term vaccine breakthrough so his change in tune will send risk-on sentiment through the market.  
• With the dominance of international headlines it will be difficult for local news to move the dial but this past weekend was littered with domestic flashpoints. The ANC held their NEC meeting over the past few days with reports that up to 20 members called for Ramaphosa to resign, Rand negative, while yesterday NPA Investigating Directorate Hermione Cronje said that their first arrest of a high ranking politician implicated in State Capture looting could come as soon as September, Rand positive. It will be interesting to watch how these stories play out over the coming weeks.  
• Local market data today sees our July trade balance which is set to deliver yet another strong surplus thanks to subdued domestic demand for imports coupled with high precious metal prices on our exports.  
• Possible USD mid rate trading ranges in the Rand today are R16.40 and R16.70.