Today’s market commentary from Andre Botha, Senior Currency Dealer at TreasuryONE:
Quite an eventful day which started with the Rand looking to break lower and ended with the Rand firmly on the back foot along with its EM peers. Overall, it was a jittery day for the Rand with first a misunderstood headline from the President about nationalisation of the Central Bank which as it later came about will do nothing to the independence of the Central Bank. We saw the Rand knee-jerk higher on the headline reaction but soon reverted back to R14.3000.
The real kicker for the Rand and other EM currencies was the fallout after the ECB meeting yesterday. The ECB not only cut its growth forecast but introduced low-cost loans to the banks in order to stimulate the lending cycle by European banks. This has pushed back the timeline for the ECB to start hiking interest rates back and has turned the mood in the Eurozone even more negative. This bad news from the ECB has made the US dollar the flavour of the week and the US dollar is trading at the strongest level in the past year as the slowdown in Europe only fed the notion of a global economic slowdown and the market has flooded the US market.
With that in mind, where to from here? EM currencies are still under pressure and further coal could be thrown on the fire with the US non-farm payroll number that will print later on today. Should the number come out better than expected it could blow a fresh breeze in the US dollar’s sails and could extend EM losses further and the opposite is also true where it could cool the recent US dollar run.
On the local side, we saw NERSA approved electricity hikes of 9.41%, 8.1% and 5.2% for the next three financial years, far below Eskom’s application for double-digit tariff increases. Even with the lower than expected increases, it will place an enormous strain on the South African economy and we could again see anaemic growth next year.