Forex Market Report

Good morning

Budget week is upon us and while the Rand is bracing for reactions to Tito Mboweni’s speech this Wednesday we are also getting buffeted by escalating coronavirus fears on the global stage.

These are the mid rates as at 8:25 today:

USD = 15.11
AUD = 9.97
GBP = 19.55
NZD = 9.54
EUR = 16.35
Brent Crude = $57.25 per barrel

Market News

• It looks like the Rand is in for a challenging week with both local and international factors conspiring against us. We open this morning at R15.11 to the Dollar and while one major European Bank is forecasting significant Rand strength most are calling for a further slide.
• Wednesday’s Budget Speech is undoubtedly this week’s main event but coronavirus headlines are weighing on the Rand before we get there. The market had gotten used to virus updates out of China with rising infection and fatality numbers not really spooking investors. But that all changed over the past few days as the virus is mushrooming in South Korea, Italy and Iran, and these new outbreak frontiers have sent investors flocking back to safe havens while selling risk assets like the Rand.
• The following is from Reuters: Emerging market currencies slid on Monday as the rapid spread of the coronavirus outside China drove fears of a pandemic and sent investors flocking to gold and the Dollar for safety. Italy, South Korea and Iran posted sharp rises in infections over the weekend. South Korea now has more than 760 cases, Italy more than 150 and Iran 43 cases. “The omens are not particularly good today,” said Ray Attrill, head of FX strategy at National Australia Bank in Sydney. “The presumption was that we would see intermediate supply chains quickly reconnected and I think the market’s had to go through a period of questioning that logic.”
• Virus headlines aside all eyes will be on Tito Mboweni and his Budget Speech this Wednesday. Mboweni has the unenviable task of delivering a speech that will either curb expenditure, an impossible task with trade unions blocking any review to the current wage deal running to 2021 while saying that pay cuts after 2021 will not be tolerated, or increasing revenue through higher taxes. Failure to deliver could result in a downgrade to junk status by Moody’s at some point this year and the Rand is forecast to move deep into the R15.00’s as a result.
• In a refreshing case of optimism Credit Suisse has bucked the trend and is forecasting a strong bounce for the Rand after Mboweni’s speech. The Swiss bank is calling for a move to R14.40 as they feel the Rand is undervalued, and that Mboweni has the tools needed to surprise the market with good news.
• The following is from BusinessTech: “The budget represents two-way risk,” said Shahab Jalinoos, head of FX strategy at Credit Suisse. “Although we acknowledge that the risk of under-delivery is high, we also think that current Rand pricing somewhat under-prices the probability of a market-friendly outcome. We see two positive ‘tail’ risks that could lead to a sizeable drop in USD/ZAR from current levels, namely (a) a VAT hike; (b) a funding deal for Eskom which is structured in a way that reduces the future need for government funding for the company. We think that both of these are real possibilities.”
• No local market data today.
• Possible USD mid rate trading ranges in the Rand today are R15.00 and R15.30

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