The greenback fell victim to a renewed risk-on environment on Monday as a temporary trade truce between the US and China sent investors searching for higher yields. The Dollar index, against a basket of majors, fell to a low of 96.713 before closing of 97.040. The common currency, the euro, regained some lost ground appreciating to a high of $1.1380 before closing at $1.1352. Pound Sterling fell to a low of $1.2697 before closing at $1.2722 on continued concerns surrounding the approval of the Brexit deal by the British parliament.
A positive start to both the week and the last trading month of the year for the Rand, with the local unit appreciating to a low of R13.5800/$, its strongest level since early August, before closing at R13.6900/$. Investor confidence concerning the agreed ceasefire between China’s XI Jinping and the US’s Donald Trump benefitted EM currencies in general. The Rand may also have benefitted from the uptick in new orders and business activity as the Purchasing Managers’ Index (PMI) rose for the first time in three months to 49.5 in November from 42.4 in October.While global affairs have been driving the Rand’s recent performance, investor attention will now turn to domestic affairs as Stats SA will report on the Q3 GDP print today. The market widely expects a marginal uptick to 0.5% y/y (prior reading 0.4% y/y). The numbers look promising to set the stage for a further move lower as all indications show that SA Inc. may have come out of the technical recession in the last quarter. Both fundamentals and technicals point towards a further move lower as the R13.50/$ level comes into sight in the near term. Only soft domestic data releases could jade the more constructive external environment for the local unit. Range for the day R13.5500 -13.7000/$
Currency Vol update
In line with the move lower in USDZAR spot, buoyed by dissipating trade war fears after a temporary trade truce between the US and China, bearish bets on the ZAR continued showing signs of a decline.Across the curve, vols traded lower yesterday after the market consolidated the outcomes of the G20 summit. Market data today comes in the form of gross domestic product (GDP) , which is expected to register a positive reading and indicating that SA Inc. has moved out of a technical recession. We open with 3-month atm vol at 15.890/16.750.