Forex Market Report

What is Gap Cover? How Does It Work and Why Do You Need It?
Sep 14, 2020

Here we go, the first day of the final quarter of 2020 and the home straight towards 2021. No doubt there are billions of people around the world eager to see the back of this unprecedented year, but we only have 3 months left to sort things out before the clean slate of a new year arrives!

 

 

 

Market News

  • The Rand closed the quarter off on the front foot thanks largely to international developments but with a smattering of positive local news thrown in. We opened the day at R16.95 to the Dollar and after a brief dip to R17.01 the Rand traded progressively stronger to hit its intraday best of R16.67 late on, gains that we have pretty much held onto overnight. 
  • Our initial fall to R17.01 was thanks to the scarcely believable circus that was the US presidential debate. Rather than portraying themselves as two stately politicians vying for the most powerful job in the world Biden, and particularly Trump, came across as bickering toddlers scrapping it out in the sandbox. Some analysts have concluded that this was actually Trump’s strategy as disrupting Biden prevented him from landing any solid blows on damaging issues, with Biden’s frustration clearly evident when he exclaimed “Will you just shut up man!”. The Dollar strengthened thanks to this spectacle which if anything confirmed that it could take some time after the election before we know who has won. 
  • Fortunately, our slide was short lived as first local data, and then US headlines saw risk assets like the Rand catch a bid. On the local front our consumer inflation was forecast to increase from 3.1% to 3.2% but failed to budge by staying at 3.1%. While this was unexpected it is hardly a plunge to the downside and keeps the SARB’s end to our interest rate cutting cycle firmly in place, Rand positive. Then later in the day our trade surplus was forecast to come in at R25bn and so the actual surplus of R39bn was a blowout number and helped support the Rand. 
  • But most of our move stronger yesterday came from upbeat US market data as well as increasing speculation that Democrats and Republicans are getting closer to a new stimulus bill.  US private payrolls for September smashed expectations coming in at 749 000 new jobs while their pending home sales ballooned to the highest level on record, and these eased fears around the US economy which increases risk appetite thus supporting the Rand while hurting the Dollar. US Treasury Secretary Steven Mnuchin later said that he and House Speaker Nancy Pelosi had “made a lot of progress” on agreeing the next COVID relief package and this further improved the risk-on sentiment. 
  • In the past hour we have had word from the White House that they are happy to go to $1.6trn in stimulus which is below the Democrats proposal of $2.2trn, but further evidence that the two parties are getting closer together. This should further support the Rand and the following is from Reuters: The Dollar was on the defensive at a one-week low on Thursday, as robust US data and fresh hopes for US fiscal stimulus had investors confident enough about economic recovery prospects to seek out riskier currencies. “The two sides have come a long way,” said Westpac FX analyst Sean Callow. “The rhetoric is reasonably conciliatory, I think we’re getting closer,” he said, adding an agreement would help the mood in equity markets and likely spill over into currency trade, boosting riskier currencies at the Dollar’s expense.
  • Local market data today sees our September manufacturing PMI at 11:00 which is expected to further improve from 57.3 to 58.4. 
  • Possible USD mid-rate trading ranges in the Rand today are R16.55 and R16.85.
 
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