What is Gap Cover? How Does It Work and Why Do You Need It?Sep 14, 2020
Mondays in November 2020 have developed a penchant for delivering big headlines and yesterday was no different. The main takeaway however was that our local challenges in a double credit rating downgrade did not scratch the surface as international developments drove Rand price action.
- All things considered it looked like a cracker start to the week until the US released much better than expected market data which ruined our party. The Rand opened at R15.37 to the Dollar and traded progressively stronger to hit R15.27 just after mid-day, but as the US session opened their data release sent us tumbling back to R15.46 in double quick time.
- It was feared that Friday’s credit rating downgrades by Moody’s and Fitch would set up a difficult day for the Rand but even though these cuts came as a bit of a surprise they hardly moved the dial. It could be argued that the market was not overly concerned to start with given that we were already in junk territory across all three agencies, but a quick look at the Dollar Index chart shows clear Dollar weakness yesterday morning which was the main reason why we strengthened. Unfortunately, a move straight up for the Dollar later is why we weakened into our session close.
- Dollar weakness in the morning session came thanks to yet another Monday announcement of a COVID vaccine, this as AstraZeneca revealed their vaccine results with an efficacy rate of around 90%. We now have three highly effective vaccines, each in various stages of getting their safety approvals, and with US healthcare workers likely to get the Pfizer vaccine within 3 weeks that seriously supported the risk-on feel yesterday and the Dollar sank as a safe haven.
- The following is from BusinessDay: The Rand shrugged off SA’s latest downgrade by ratings agencies, taking its cue from optimism about vaccine rollouts that boosted sentiment on riskier assets. “Progress on various vaccine developments to protect against COVID-19 are fuelling investor risk-taking, with positioning increasing in perceived higher-return assets as well as in industries having lagged recovery due to the impact of COVID-19,” said Investec chief economist Annabel Bishop.
- Just as it looked like a great start to the week the Rand plunged from R15.27 to R15.46, this as the Dollar Index spiked from 92.01 points to 92.79 in a matter of minutes. The culprit was a pair of US purchasing manager index reports which smashed expectations to the upside and painted the clearest picture yet of a robust US economy despite their surging COVID cases. Manufacturing PMI was forecast to come in at 53 points so the actual reading of 56.7 was a big beat, and their services PMI also came in strong at 57.7 with both readings pointing to a resilient US economy. The Dollar loved this news as investors flocked to Dollar based assets and the Rand took a direct hit as result.
- We got a small boost late on but “small” being the operative word. After three weeks of almost pantomime like entertainment (think going golfing instead of sitting in on the G20 virtual pandemic conference) Donald Trump has finally given the go ahead for a transition to Joe Biden’s presidency. Of course Trump has not conceded defeat and vows to continue fighting his legal battles, but with Biden now receiving the funding and briefings needed to assume control on the 20th of January that has removed an item of uncertainty which in turn hurt the Dollar and moved us slightly stronger.
- Local market data today sees our leading business cycle indicator which is forecast to tick up from 3.7% to 4.2%.
- Possible USD mid-rate trading ranges in the Rand today are R15.25 and R15.55.
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