Forex Report – 22 November 2018

The indebted South African consumer will be hoping that our Monetary Policy Committee (MPC) does not hike interest rates this afternoon but the Rand would cheer a hike should one materialise.

These are the mid rates as at 8:20 today:

USD = 13.93

GBP = 17.83

EUR = 15.88

AUD = 10.12

NZD = 9.49

Brent Crude = $63.44 per barrel

 

Market News

  • Another good day for the Rand yesterday and we seem to be putting a nice little run together.  The Rand opened at R14.76 to the Dollar on the 1st of November and exactly 3 weeks later we hit an intraday best of R13.85 yesterday which is a massive improvement.  And closing the day well below the R14.00 handle is another positive indicator.
  • Economists remain uncertain on whether the MPC will hike today as is seen by the following excerpt from Business Day:  “Persistently low underlying inflationary pressures suggest that the Bank’s expectations of an increase in core inflation to a 4.8% average over the quarter of 2018 are high,” said FNB chief economist Mamello Matikinca. “While our view is for a 25-basis-point increase in the policy rate, benign underlying inflation may delay a policy rate hike.” she said.
  • SA interest rate speculation pushed the Rand stronger but was joined by a strengthening Euro, this following a report that Italian Deputy Prime Minister Matteo Salvini is open to reviewing the Italian budget as the EU formally began disciplinary proceedings against Italy yesterday.  The ongoing dispute between the EU and Rome has kept the Euro under pressure of late but hope of a resolution sent the Euro back towards $1.14, and this move would have helped support the Rand.
  • The Dollar continues to trade marginally weaker which would have also helped our exchange rate.  There is growing speculation that the FED will pause on their interest rate hiking cycle, either in December or with fewer hikes next year, and the prospect lower than expected US interest rates has driven investment flows to emerging market currencies like the Rand.
  • The following expert from Bloomberg points to a potential boost for our exchange rate should the FED apply the brakes (which is still unlikely but now on the radar when previously unthought of):  The mere hint that the FED could pause on rate hikes next year has some money managers re-examining emerging markets — starting with the hardest-hit assets. Aberdeen Standard Investments, Schroders Plc and BlackRock Inc. are looking with renewed interest after FED Vice Chairman Richard Clarida said last week there’s “some evidence” that the world economy is cooling down. A slower pace of rate increases would weaken the Dollar and aid emerging markets, which attract investors by paying higher yields to account for their bigger risk.
  • Local market data today sees our interest rate announcement at 3pm.
  • Possible USD mid rate trading ranges in the Rand today are R13.85 and R14.15.

 

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