Senior Research Analyst at FXTM
Trading
on the Nigerian Stock Exchange (NSE) maintained a lackluster mood on Wednesday
with the All-Share Index dipping 0.17 percent, thanks to a decline in banking
stocks.
One of
the biggest losers was Royal Exchange Plc which declined 10% to trade around
0.27 Naira as of writing. Given the ongoing uncertainty presented by COVID-19,
and recent depreciation in Oil prices primarily fueled by signs of the
coronavirus fallout weighing on the energy sector, appetite towards local
stocks may remain muted.
South Africa
publishes shocking GDP data
Words
fail to describe South Africa’s shocking and surreal gross domestic product
data for Q2. Economic growth contracted by a heart-stopping 51% q/q during the
second quarter of 2020 thanks to the impacts of lockdown restrictions since the
end of March 2020. This is the steepest decline since 1990 and raises concerns
over the outlook for Africa’s most industrialized nation. It must be kept in
mind that South Africa was already in a vulnerable situation before the
coronavirus menace sunk its poisonous fangs into core services and sectors. The
negative impacts continue to be reflected in economic data, as the country
struggles to nurse deep wounds inflicted from tough lockdowns and rising
coronavirus cases.
Expectations
are set to mount over the South African Central Bank cutting interest rates for
the sixth time this year to jumpstart economic growth. Given how inflationary
pressures remain muted with consumer prices around 3.2%, this offers the SARB
enough breathing room pull the rate cut trigger potentially in September or
November. The key question is whether lower interest will breathe life into an
economy entangled in a fierce battle against multiple risks. As of now, South
Africa is predicted to experience its worst economic contraction since the
Great Depression in the 1930s.
Despite
all of this negativity, the Rand is standing tall against the Dollar and other
G10 currencies today. It has even appreciated across the board since the start
of September and has offered a mixed performance across the FX space
quarter-to-date.
The
South African Rand remains influenced by external drivers in the form of
COVID-19 developments, US-China trade and global sentiment. If the market mood
improves this week and investors able to shake concerns over possible a delay
in the COVID-19 vaccine, this may bode well for the Rand.
Dollar bulls
stage a comeback
After
being badly mistreated by G10, Asian and Emerging market currencies over the
past few months, the Dollar has had enough.
The
former king of the currency markets is on a mission to reclaim dominance,
appreciating across the board after a sell-off in stock markets prompted
investors to rush towards safe-haven destinations. Dollar bulls seem to be deriving
strength from not only concerns over a possible delay in the Covid-19 vaccine
but the recent U.S jobs report showing a decline in the U.S unemployment rate
and jump in U.S Treasury yields.
With
the Dollar Index trading at levels not seen in four weeks around 96.30 and
appreciating over 1.5% since the start of September, are bulls back in the
game?
Looking
at the technical picture, a rebound may be on the cards on the weekly timeframe
following the solid move above 93.00. A weekly close beyond this point could
suggest an incline towards 94.00 and 96.00 in the medium term. If 94.00 proves to be reliable resistance,
the DXY may find itself sinking back towards 93.00 and 91.15.
On the
daily timeframe, prices remain in a wide range with support at 92.20 and
resistance around 94.00. A daily close above 94.00 could inject bulls with
enough inspiration to target 94.65 which then opens the doors towards 93.00 and
beyond.
The
question on the mind of many investors is whether the Dollar is able to
maintain this current burst of confidence and majesty across the FX space.
Although the currency is still considered as a safe-haven currency and the
worlds reserve currency, it has weakened against every single G10 currency this
quarter.
Negative
themes in the form of rising coronavirus cases in the United States and
political uncertainty ahead of Novembers presidential election may limit the
Dollar’s upside gains. Given the fundamental forces influencing the Dollar’s
longer-term outlook, prices still have the potential to decline with a move
below 92.00 on the monthly timeframe acting as an early signal.
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