Forex Market Report

Why do you need Medical Aid?
Aug 3, 2020

Tragic scenes in Beirut as a massive explosion ripped through the city yesterday injuring thousands and with a rising death toll now standing at 100. The port city is on its knees just as they were starting to really battle with COVID-19, without doubt the worst possible time for 2 750 tonnes of ammonium nitrate carelessly stored since 2014 to ignite.



Market News

  • Video and pictures coming from Beirut make the Rand’s drop from R17.21 to the Dollar to R17.52 seem insignificant, but this was the worst level for the Rand since the 1st of June and another leg down in our recent weakening pattern.   
  • Yesterday’s post seems to have been false hope as I spoke not only about the Dollar finding support after a prolonged downward spiral but also about the Rand moving inversely to the Dollar’s jump. As the day progressed this hope faded as the Dollar resumed its fall which would have been good for the Rand if we still moved in the opposite direction, but gloom for the Dollar pulled through to emerging market currencies and we fell to a new recent low of R17.52. 
  • The Dollar story is twofold with both focal points fostering risk-off sentiment.  Their immediate problem comes from stalled negotiations between Republicans and Democrats to reinstate some sort of COVID relief payments which expired on Friday last week. Over 30 million unemployed Americans were getting $600 every Friday but with just two days to go the parties remain far apart in agreeing some sort of replacement. This is nothing new in the world of politics and an 11th hour deal will not be a surprise, but until the market knows exactly what is happening the prevailing uncertainty is Dollar negative while also weighing on the Rand. 
  • The second source of Dollar pain is more difficult for them to deal with, this as the widespread impacts of COVID-19 threaten to derail their post lock-down recovery momentum. Today we get private sector payrolls for July which will set the scene for tomorrow’s initial weekly jobless claims and then their non-farm payroll figure on Friday, and this triumvirate of employment data will give a window into the health of the US consumer which is integral to a strong US economy. If their employment data is weak the Dollar and Rand will fall but we could bounce if the data is better than expected. 
  • The following is from Reuters and suggests another potential thorn in the Dollar’s side as investors could start to rotate out of US equities and into more attractive Euro markets:  Analysts at ING have also noted that equity investors have yet to really buy in to the European recovery story – and say a pile-in could provide even more support to the Euro. “Buy-side surveys suggest that investors are still heavily overweight U.S. equities, especially tech stocks, and are minded rotating into the Eurozone and see the Euro as cheap,” said ING’s global head of markets Chris Turner. “If that rotation comes to pass then Euro/Dollar may be a $1.25 story after all.”
  • Talking about rotation the Rand would not have been helped by confirmation that international investors are turning their backs on SA bonds with foreign ownership falling to an 8 year low at 30.1%, down from over 37% in January and a total outflow of R54bn this year. The following is from MoneyWeb: “The continuous downgrades by all three ratings agencies seem to be having the effect of taking South Africa off the radar for many offshore investors despite the attractive yields on offer,” said Deon Kohlmeyer, a Johannesburg-based trader at Rand Merchant Bank. “It remains to be seen whether local investors can take up the issuance slack created by the reduction in offshore investor interest.”
  • Local market data today sees our services PMI at 9:15 and a jump from 42.5 to 52 points is forecast.   
  • Possible USD mid-rate trading ranges in the Rand today are R17.20 and R17.50.
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