Good Morning
The ZAR weakened sharply ahead of US CPI and the SA holiday tomorrow.
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Market Movement Today:
The ZAR weakened nearly 2.5% to reach 18.8300 in early trading.
- The local unit is under pressure as traders unwind long ZAR positions ahead of the US CPI report.
- As has been the case recently, whenever we have a SA holiday, it appears to create a liquidity vacuum, resulting in ZAR weakness or sharp gains.
- Either way, range volatility increases dramatically.
- Traders hedging ahead of tomorrow’s August 9th holiday also placing pressure on the ZAR.
However, the key data remains US CPI on Thursday.
- It will likely set the next directional leg for the Dollar.
- US inflation expected at 3.3% YOY vs 3% previous.
- Analysts citing a removal of the base effects as well an increase in energy and food prices.
- A higher number will likely send the Dollar higher, removing any chances of a Fed pause/cut later in the year.
- If any it would support further Fed hikes.
- We expect the ZAR to remain under pressure with a risk of further weakening if US inflation prints higher.
- Trade: BUY USDZAR on DIPS
Markets this morning:
- USDZAR 18.8000
- DOLLAR 102.19
- EURUSD 1.1000
- SP500 4,506
- GOLD 1933
- US10YT 4.03%
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