Rand Strengthens as Dollar Weakens on Global Developments

Good morning

They say that things always happen in threes and while there’s a healthy dose of superstition that goes along with sayings like this for the Rand we’ve just enjoyed three positive boosts in short succession.     

These are the mid rates at 7:05 today:

Market News

• A little over a week ago, the Rand had collapsed to R16.95 to the Dollar with a break above R17.00 seemingly on the cards.  The great news is that late last week and into the weekend we’ve seen three completely separate developments all weigh on the Dollar, which in turn means we go into the new week at R16.46, and hopefully with further gains lying in wait. 
• From an economic perspective, the main event last week was the FED’s monetary policy announcement on Wednesday night, and while it was agreed that chances of an interest rate hike were slim, the market was gearing up for assertive language from Chair Kevin Warsh.  The Dollar Index was on the front foot going into this meeting, movement that pushed the Rand out to R16.80, but things changed quite quickly when Warsh’s comments around imminent rate hikes were nowhere near as hawkish as first feared.  The Dollar sank and the Rand jumped to R16.60.
• The Rand was enjoying a weaker Dollar thanks to the FED’s soft touch, but on Thursday we then heard that the US and Japan had conducted a joint intervention effort aimed at supporting the Yen.  Over recent weeks, the Yen had fallen to 163 against the Dollar, which is close to its weakest level in 40 years, and well past the key 160 level where most analysts anticipate that authorities would step in.  Japanese officials had repeatedly warned of intervention becoming their only option, but the market was a little shocked when we heard that not only did the Bank of Japan sell $59bn worth of Dollars to buy the Yen, but the US also sold a significant amount of Euros to buy the Yen.  A strengthening Yen off the back of this joint effort pushed the Dollar lower. 
• The following is from Reuters and suggests that when the US and Japan work together in strengthening the Yen, then the effects are usually long lasting, which is good news for the Rand:  The Yen leapt on Monday, keeping traders on alert for further intervention ​from authorities to shore up Japan's historically weak currency, days after Tokyo and Washington jointly intervened in the ‌foreign exchange market. "History is clear, joint FX intervention packs a punch, and investors should lean with the official flow, not against ​it," said Elias Haddad, global head of markets strategy at BBH. "Since 1998, all three coordinated U.S. FX intervention episodes were successful."
• The Rand closed for the weekend at R16.54, but the good news wasn’t over yet; this was as on Sunday Donald Trump confirmed that he had called off the planned major attacks on Iran so that negotiations can resume today.  Granted, the market has seen this movie before where devastating attacks are threatened only for them to be paused at the eleventh hour to allow talks to continue, but even though the market’s reaction has been muted, at least what little price action we’ve seen is for a weaker Dollar.  The Rand goes into today at R16.46, hopefully with further gains ahead should today’s talks lead to a more substantive ceasefire. 
• Local market data today sees our July manufacturing PMI at 11:00, followed by the month’s new vehicle sales at 1 pm. 
• Possible USD mid rate trading ranges in the Rand today are R16.30 and R16.60.

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