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Daily currency update
WHAT TO WATCH TODAY:
-SA 1Q09 GDP data at 11:30.
-US April consumer confidence data at 16:00.
-The meeting on Thursday has necessitated a change in the local data release calendar. Credit data is now due on Thursday at 08:00 and PPI at 09:00.
TODAY’S EXPECTED RANGES:
USD/ZAR: 8.25 - 8.45
EUR/ZAR: 11.50 - 11.75
MTN DEAL CAN CHANGE THE ZAR OUTLOOK
It appears that the proposed Bharti-MTN deal could generate a net US$4bn inflow into South Africa if it goes ahead. This is a huge amount, especially as it comes after the US$2.2bn Vodacom deal and a net US$0.9bn from the government’s offshore bond issue (US$1.5bn issued less US$0.6bn maturing). These flows will fund almost half the current account deficit this year implying scope for continued ZAR strength in the short term (our longer-term cautious view remains unchanged). In fact, the flows are so large that the SARB will now have increased control of the ZAR through deciding how much, if anything, to absorb into reserves.
Before we count our chickens, we must realise that the deal is far from done. Presumably Bharti and MTN have resolved the issues over control that prohibited a deal this time last year and they have until 31 July to sort out any differences. But local regulators still need to have their say and, while MTN is assuring that no jobs will be lost, the debacle with the unions (and separately the regulator) with their court challenge to the Vodacom deal reminds of the risks involved. This may turn into a political test that will show if South Africa is open to investment or not! Expect uncertainty over the deal in the next few months.
The news generated no great shakes on the ZAR yesterday - with US and UK markets on hold, trade was limited and USD/ZAR sat around the 8.30 level where we find ourselves again this morning. 8.25 continues to hold and will be tough to break but the market is heavy and could get a boost from the MTN news.
Focus today is mainly on EUR/USD, which could be affected by US consumer confidence numbers and the US government’s 2-year debt issue. A sustained EUR/USD break meaningfully through 1.4000 could generate a similar break on USD/ZAR. Locally watch GDP. We are in a recession - let’s see how bad.
THE CROSSES:
-The crosses remain extremely stable, reflecting the fact that USD/ZAR is mainly being driven by USD strength or weakness. EUR/ZAR looks to trade around 11.60. GBP/ZAR above the 13.00 mark and ZAR/JPY around 11.35.
OTHER NEWS
-ECB’s Paramo says the Bank will start buying covered bonds shortly after the June meeting.
-The German IFO business climate index rose in April, although not as fast as thought.
