ZAR Plunges, GBP Loses Ground, CAD Eyes BoC Risk - US Market Open
MARKET DEVELOPMENT – CAD Eyes BoC Risk, ZAR Plunges, GBP Loses Ground
GBP: Following yesterday’s sizeable gains, the Pound has lost a little bit of its shine this morning after reports that 3 MPs quit the Conservative Party to join the recently created Independent group. Consequently, this has taken May’s parliamentary majority to 8, which in turn has raised the possibility general election in the near-term, particularly if more of her MPs quit. Eyes will be on the outcome between UK’s May and EU’s Juncker with GBP bulls hoping for tangible Brexit progress.
ZAR: The South African Rand has had a torrid February thus far with the currency dropping over 8%. Today’s budget announcement saw the ZAR plunge over 2% after the government pledged to provide debt-ridden Eskom 69bln Rand over 3yrs, somewhat short of the 100bln that Eskom had wanted. As such, given the systemic risks associated with Eskom, there is a growing risk that Moody’s may downgrade South Africa’s sovereign rating to junk next month (March 29th). ZAR outlook remains weak. Of note, S&P and Fitch both have South Africa’s sovereign rating at junk status.
CNY / CNH: The Yuan led the gains against the greenback throughout the Asian session amid reports that US may force China to pledge against Yuan devaluation. This may not be a massive surprise given that last years FTA between South Korea and US saw the US call on South Korea to pledge against competitive devaluation. However, increased talk from the US over the Yuan may see the currency continue to strengthen against the USD.
CAD: With USDCAD breaking below 1.32, the Canadian Dollar is the outperformer across the G10 complex as CAD watchers eye tomorrows speech from BoC Governor Poloz. With rates markets somewhat dovish in regard to further BoC hikes (16% priced in for 2019 hike), the uptick in oil prices and improving in wage inflation, may see the BoC provide a more positive outlook, raising scope for further CAD gains.
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--- Written by Justin McQueen, Market Analyst
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