Weekly market report by Andre Botha, Senior Currency Dealer at TreasuryONE
From Corona to SONA
The banana peel that the Rand stepped on was a little bit bigger than we initially thought as the Rand broke above the R15.00 level in the wake of developments in China and good numbers out of the US on Friday.
If one looks at the current momentum, we can also see marked in the orange circle that it is also topping out. Importers must make use of the levels towards R14.70 to cover, as we still have budget risk later in Feb.
The doom and gloom that filtered in from China concerning the spread of the Coronavirus have lifted a little at the start of the week with cases reported starting to stabilise. The good news is that stabilisation will bring to the market a sense of calm. It, therefore, follows that risky assets like the Rand will start to claw back some of its losses on the back of the reduced “fear”. However, there is another player in this match that could have something to say about the direction of risky assets, and that is the mighty US dollar.
The Us dollar started its push stronger on the back of the “risk-off” sentiment that the market had for the last couple of weeks due to the Coronavirus. The US dollar also had a shot in the arm on Friday with good US non-farm payroll numbers. The US added a better than expected 225,000 jobs in January; the expected number was 165,000. The renewed confidence in the US economy boosted the US dollar to break below the 1.10 level against the Euro, thus pinning the Rand and other EM’s from gaining any ground, with the increased sentiment.
Enough of last week, and into the crystal ball that is this week and the major event from a local perspective: The State of the Nation Adress (SONA) by President Ramaphosa on Thursday. With political parties threatening to interrupt the SONA, it should make for exciting viewing, to say the least. The market and Joe Public, however, will look to the address to find answers on how the powers that be will address ESKOM, SAA, corruption too name a few. The market will be jittery in the lead-up and post SONA, which makes Thursday a critical day for the Rand along with the budget speech later on this month.
Other events this week will be Governor Powell’s testimony to the Congress in the US, ECB’s President Legarde address to the European Parliament and the cut of tariffs by China on certain US products as per phase one of the trade agreement between China and the US. On the data front, we have the US inflation rate on Thursday and the Eurozone growth rate on Friday. The numbers will only be market-moving should it miss estimates by a wide margin.
As stated earlier the Rand could find the road to trade stronger blocked by the strength in the US dollar, but as Chinese production starts again and the full impact of the Coronavirus can be determined, maybe sentiment will shift back to where it was at the beginning of January, and the Rand can trade stronger. The only worry is that local issues are at the forefront this month and it could hinder the Rand should an EM pullback happen.
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