Despite the US holiday the greenback consolidated gains at the start of the week as tensions around global trade and a continued sell-off in EMs fuelled demand for the dollar. The dollar index against a basket of majors was flat at 95.14. The euro edged down 0.1% at $1.1623 against the greenback after data showed the EU manufacturing growth slowing to a near 2-year low in August as optimism dwindled due to the fears of escalating global trade tensions. The British Pound was down 0.2% at $1.2870 against the dollar as Brexit concerns and a weak British economy continue to weigh on the Cable. The Pound remains vulnerable to further downside pressures in the near-term, especially as trade concerns continue to provide support to the greenback
The Rand’s rout deepened as we started the week and the month, with the local unit testing a session high of R14.94/$, before paring losses to close the session 1.1% weaker at R14.88/$. It was a perfect storm for the beloved currency as both global and local factors contributed to the battering of the ZAR. Headwinds from the EM contagion risk from Argentina and Turkey, poor data out of China, trade tensions and thin liquidity from the US holiday, saw the Rand and EM currencies experience a highly volatile session.
Adding onto the woes of the ZAR is local economic growth concerns that continue to dampen sentiment. Local data print showed car sales came under pressure in August as the economy struggles. The Manufacturing PMI index unexpectedly plunged in August to 43 from 51 in July, well below expectation of 50. And now its Q2 GDP figures to be released today that will be the major focus as worries of a technical recession gain momentum
While the EM environment remains fluid, domestic factors have further added weakening pressure for the Rand. Until the market gets clarity issues such as land expropriation, nationalization of the SARB, the mining charter, and now potential technical recession; lingering idiosyncratic risks are therefore likely to keep the beloved on the back-foot, and a break above R15.00/$ cannot be discounted. Range for the day 14.70 to 15.05.