2011-06-07 RMB Daily FX | Euro | Federal Reserve System

RMB FICC Research

Daily currency insight
7 June 2011

Analysts
John Cairns Currency Strategist john.cairns@rmb.co.za +27 11 282-8656 Nema Ramkhelawan Currency Analyst nema.ramkhelawan@rmb.co.za +27 11 282-8519

Jittery trade
Concerns over the global economy continue. Global equities dropped for the fourth day in a row yesterday and this is starting to impact on risky currencies. Add some EUR/USD weakness on continued uncertainty over Greece and USD/ZAR has pushed to 6.80. We should see some slight ZAR recovery this morning on the back of EUR/USD, which remains the key intraday indicator to watch, with dips possibly to 6.75. For much more than this we would need to see EUR/USD break though 1.4650. Looking out a little further it’s clear that we live in uncertain times, with both global equities and EUR/USD very edgy. USD/ZAR still seems happy in its broad 6.55 – 7.20 range but this narrow band gives a false indication of risks — the key one at the moment being that we have a bout of risk aversion on the back of the poor global economic data. Local reserve data first thing this morning will give us an indication of SARB involvement — if any — in the market in May. Eurozone retail sales figures later in the morning also provide some risk, as will Wall Street’s opening but the key event of the day is Fed Chairman Bernanke’s speech late this evening. Other Fed policy makers yesterday largely dismissed the idea of QE3 — lets see what the boss has to say. Trade Minister Davies yesterday said that the ZAR was overvalued — no surprise — and that the authorities are looking at what to do about it — a little surprising since others in the government have, seemingly, rightly given up on the idea of controls. The bottom line is that the authorities can’t do much about the currency even if they wanted to — Davies comments can be safely ignored.

Figure 1: Will risk aversion soon impact on the ZAR

USD/ZAR 8.00

Dow Jones Index (RHS) 9,000 10,000

7.50

11,000 7.00 12,000 6.50

13,000 14,000 Jul-10 Jan-11 Jul-11

6.00 Jan-10

Source: Reuters, RMB FICC Research Data as at June 2011

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The crosses
 EUR/ZAR has been pushing up sharply, a sign of global risk
aversion on the back of worries over the global economy. Moves above 9.90 though seem a little extended so we could see dips back below 9.90 this morning

 Both GBP — on the back of poor retail sales and negative
comments from the IMF — and the ZAR weakened yesterday but GBP/ZAR nevertheless managed to gain 11.10.

What to watch today
 EUR/USD  SA May reserve data at 08:00  Eurozone May retail sales data at 11:00  SA 2Q11 RMB/BER Business Confidence Survey at 12:00  How Wall Street performs  Fed Chairman Bernanke’s speech at 21:45 tonight

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Data and events calendar
Date Mon 06 Time 09:30 11:00 19:15 Tue 07 23:30 08:00 08:00 11:00 12:00 12:00 15:00 18:30 21:00 21:45 Wed 08 01:50 08:00 08:00 11:00 11:30 12:00 20:00 20:20 23:00 Thu 09 01:50 07:00 10:00 10:30 11:30 11:30 13:00 13:00 13:00 13:00 13:45 14:30 16:00 17:30 Fri 10 04:00 08:00 08:00 08:00 10:30 10:30 10:30 10:30 10:30 14:30 14:50 20:00 US EC US US SA SA EC GE SA EC US US US JN GE GE EC SA GE US US NZ BZ JN JN US UK SA SA UK SA SA UK EC US US US CH GE GE GE UK UK UK UK UK US EC US Event Fed's Plosser Speaks on Central Banking in Helsinki Eurozone PPI (y/y) Treasury's Geithner Speaks to Bankers in Atlanta Fed's Fisher Speaks in New York Net Reserves Gross Reserves Euro-Zone Retail Sales (y/y) Factory Orders (y/y) nsa BER Business Confidence Index EU's Barroso Speaks About G-8 Summit to European Parliament Fed's Lockhart Speaks on Economy in North Carolina Consumer Credit Fed's Bernanke Speaks to Bankers in Atlanta Japan Money Stock M3 (y/y) Current Account (EURO) Trade Balance Eurozone GDP s.a. (y/y) SACCI Business Confidence Index Industrial Prod. (y/y) nsa wda Fed Releases Beige Book Economic Survey Fed's Hoenig Speaks in Steamboat Springs, Colorado RBNZ Official Cash Rate SELIC Target -– Central Bank Nominal GDP (q/q) Consumer Confidence Fed's Plosser Speaks on U.S. Economy in London Total Trade Balance (GBP/Mln) Gold Production (y/y) Mining Production (y/y) Bank of England Monetary Policy Committee Decision Manufacturing Prod. sa. (m/m) Manufacturing Prod. nsa. (y/y) BOE Announces Rates ECB Announces Interest Rates Initial Jobless Claims Wholesale Inventories Fed's Yellen Speaks on Housing in Cleveland Trade Balance (USD) Consumer Price Index (y/y) CPI – EU Harmonised (y/y) Wholesale price Index (y/y) Industrial Production (y/y) Manufacturing Production (y/y) PPI Input NSA (y/y) PPI Output n.s.a. (y/y) PPI Output Core NSA (y/y) Import Price Index (y/y) EU's Rehn Speaks at Research Conference Monthly Budget Statement May May May May Apr Apr May May May May May $19.80bn 2.30% 2.40% -1.30% 3.40% 16.20% 5.30% 3.40% 11.20% -$150.0bn $11.42bn 2.30% 2.40% 9.20% 0.70% 2.70% 17.60% 5.30% 3.40% 11.10% -$135.9bn Apr Apr Jun Jun Jun Apr -0.60% 5.00% 0.50% 1.25% 419, 000 1.00% 1.60% 4.60% 0.50% 1.25% 422, 000 1.10% Apr Apr Apr -£2, 950 ---£3, 005 0.60% 0.60% Jun Jun 1Q F May 2.50% 12.25% -1.30% 34.5 2.50% 12.00% -1.30% 33.1 May Apr Apr 1Q P May Apr 2.00% 11.4bn 15.0bn 2.50% -10.00% 2.10% 19.5bn 18.9bn 2.50% 86.9 11.20% Apr $5.000bn $6.016bn May May Apr Apr 2Q $46.3bn $50.6bn 0.00% 9.10% -$46.0bn $50.6bn -1.70% 9.70% 55.0 Apr 6.60% 6.70% Period Survey Prior

All times are for South Africa, which is GMT +2 Source: RMB FICC Research, SARB, Bloomberg, Reuters and I-Net Bridge Data as at June 2011

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USD/ZAR and EUR/USD over the past week 7.00
USD/ZAR EUR/USD (RHS)

USD/ZAR over the past year 1.410 8.00 1.420 7.70 1.430 7.40 1.440 7.10 6.80 6.50 7-Jun

6.90

6.80

6.70 1.450 6.60 1.460 1.470 Tue Wed Thu Fri Mon Tue

6.50

7-Sep

7-Dec

7-Mar Maturity

7-Jun

% change Currency rates ZAR EUR/ZAR GBP/ZAR ZAR/JPY EUR JPY GBP CHF Commodities Gold US$/oz Platinum US$/oz Brent oil US$/pb CRB Index Equity indices Dow NASDAQ S&P500 FTSE DAX Nikkei 225 SA Top 40 SA All share MSCI - World MSCI - EM free Bond yields (%) R186 R157 US 2-year US 10-year SA 10-year Yankee Sovereign spread Currency spread
3 4 2

Last 6.779 9.904 11.084 11.844 1.461 80.29 1.635 0.835 1,544.6 1,807.7 116.3 345.4 12,090 2,274 1,286 5,863 7,085 9,426 28,277 31,578 337.2 1,149.0 8.415 7.430 0.429 3.002 4.457 163 373

1-day 1.33 1.16 0.79 -1.26 0.17 0.05 -0.54 0.02 -0.03 -1.01 0.43 -3.91 -0.50 -0.78 -1.08 0.14 -0.34 0.48 0.00 0.01 -0.75 -0.56 1.0 0.0 -0.4 0.9 0.0 -0.9 0.0

1

1-week -0.41 1.08 -1.00 -1.10 1.50 -1.51 0.60 -2.25 0.73 -1.06 -1.72 -3.91 -3.82 -4.13 -4.39 -2.12 -2.87 -2.76 -3.41 -3.03 -3.08 -1.62 -10.1 -11.2 -4.0 -5.7 0.0 5.7 -2.1

1-month 1.70 3.85 1.60 -2.08 2.11 -0.41 0.10 -4.98 3.34 1.20 1.54 -3.91 -4.34 -4.56 -4.03 -1.90 -5.44 -4.40 -1.22 -0.94 -3.32 -1.23 -19.7 -15.9 -12.5 -14.7 0.0 14.7 -16.2

Outright forwards ZAR EUR/ZAR GBP/ZAR ZAR/JPY Money market rates (%) JIBAR bp change LIBOR bp change EURIBOR
1 1

1-m 6.800 9.92 11.11 11.80
2

3-m 6.860 9.99 11.20 11.69 5.575 0.0 0.252 0.0 1.438 1.4 14.10 -30.0 11.95 0.0 Maturity

6-m 6.950 10.09 11.33 11.53 5.84 0.0 0.401 0.0 1.719 1.7 14.60 0.0 12.50 0.0

12-m 7.140 10.30 11.60 11.20 6.365 -1.0 0.725 -0.2 2.140 2.1 14.90 -15.0 12.95 0.0

5.5 0.0 0.190 0.0 1.438

bp change 1 1.2 Implied option volatilities (%) ZAR bp change EUR/ZAR bp change
1

13.85 -5.0 11.55
1

0.0

FRAs (%) ZAR FRAs bp change USD FRAs bp change EUR FRAs bp change
Notes:

2

1X4 5.540 -1.0 0.262 0.0 1.530 0.0

3X6 5.600 -2.0 0.313 0.1 1.662 -3.8

6X9 5.950 -5.0 0.360 -1.9 1.860 -2.0
07-Jun 07:21

12X15 6.560 -3.0 0.555 -0.7 2.086 -3.4

1

1

1

Data as of South African time (GMT +2) Source: Reuters, I-Net Bridge, RMB FM Research Prices are bid side and are indicative only

1 Changes from 6am SA time the previous working day 2 Bond, short-term rates and FRA changes are in basis points 3 Yankee spread in bp over 10-year US Treasuries 4 10-year SA government bond spread in bp over Yankee

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Head of RMB FICC Research Theuns de Wet +27 11 269-9503 African research Celeste Fauconnier: Kenya, Mozambique, Zimbabwe +27 11 282-1923 John Cairns: Botswana +27 11 282-8656 Theuns de Wet: Zambia +27 11 269-9503 Laura Maree: Angola +27 11 282-8703 Daniel Motinga: Namibia +264 61 299-2890 Carmen Nel: South Africa +27 21 658-9351 Josina Oliphant: Nigeria +27 11 282-4823 Nema Ramkhelawan: Tanzania +27 11 282-8519

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FICC Sales and Structuring
Head of FICC Sales and Structuring Alida de Swardt +27 11 269-9626 Head of Customer Dealing Anthony Grant +27 11 269-9836 Customer Dealing Julie Routledge +27 11 269-9190 Foreign Exchange Structuring Craig Williamson +27 11 269-9030 Currency Sales Straf Graham | Eithne Robertson +27 11 269-9100 Fixed Income Sales Jeremy Fox | Deon Kohlmeyer +27 11 269-9040 Penny George +27 21 658-9375 FICC Bond Repo Desk Lee-Ann Whitby | Naomi Sekgobela +27 11 269-9050 Funding Emilio Montanari | Leon Smuts | Judy Viviers +27 11 269 9080 Local Distribution and Institutional Solutions Alistair Brown | Sandy Welthagen +27 21 658-9340 Charlè van Zyl | Murray Legg +27 11 269-9295 Money Markets Dassen Naidoo | Mark Muller | Mangwane Mabuza +27 11 269-9075

Africa
Head of FICC Africa Louis Jordaan +27 11 282-8461 louis.jordaan@rmb.co.za Head of FICC Africa Sales Pardon Muzenda +27 11 282-8664 pardon.muzenda@firstrand.co.za Botswana Pauline Motswagae +267 395-6579/364 2883 pauline.motswagae@fnbbotswana.co.bw Mozambique Ebrahim Motala +258 21 356921 ebrahim.motala@fnb.co.mz Namibia Michelle van Wyk +264 61 299-2265 michellevw@fnbnamibia.com.na Swaziland Khetsiwe Dlamini +268 404 2463 kdlamini@fnb.co.za Zambia Llewellyn Foxcroft +260 (211) 366 800 lfoxcroft@fnbzambia.co.zm

India
Harihar Krishnamoorthy: Head: FICC India +91 22 6625-8701 harihar.krishnamoorthy@firstrand.co.in

United Kingdom
Dieter Erasmus: Sales and Structuring +44 20 7939-1738 dieter.erasmus@rmb.co.uk Martin Richardson: Debt Capital Markets +44 20 7939-1731 martin.richardson@rmb.co.uk

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This research has been written by the financial markets research team at FirstRand Bank Limited (“the Bank”) (acting through its Rand Merchant Bank Division). Distribution of this research in the EEA is made by the Bank’s London branch. Whilst all care has been taken by the Bank in the preparation of the opinions and forecasts and provision of the information contained in this report, the Bank does not make any representations or give any warranties as to their correctness, accuracy or completeness, nor does the Bank assume liability for any losses arising from errors or omissions in the opinions, forecasts or information irrespective of whether there has been any negligence by the Bank, its affiliates or any officers or employees of the Bank, and whether such losses be direct or consequential. Nothing contained in this document is to be construed as guidance, a proposal or a recommendation or advice to enter into, or to refrain from entering into any transaction, or an offer to buy or sell any financial instrument. This research contains information which is confidential and may be subject to legal privilege. It is for intended recipients only. If you are not the intended recipient you must not copy, distribute, publish, rely on or otherwise use it without our consent. Some of our communications may contain confidential information which could be a criminal offence for you to disclose or use without authority. If you have received this communication in error, please notify us at the address below and destroy the communication immediately. This communication is not intended nor should it be taken to create any legal relations or contractual relationships. FirstRand Bank Limited is listed on the JSE and Namibian Stock Exchange and is an Authorised Financial Service Provider under South African law. FirstRand Bank Limited (London Branch) is authorised and regulated by the Financial Services Authority in the UK.

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