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RMB FICC Research

Daily currency insight

7 June 2011

Analysts Jittery trade


Concerns over the global economy continue. Global equities dropped for the fourth
John Cairns
day in a row yesterday and this is starting to impact on risky currencies. Add some
Currency Strategist EUR/USD weakness on continued uncertainty over Greece and USD/ZAR has pushed to
john.cairns@rmb.co.za 6.80.
+27 11 282-8656
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
Nema Ramkhelawan
than this we would need to see EUR/USD break though 1.4650. Looking out a little
Currency Analyst further it’s clear that we live in uncertain times, with both global equities and EUR/USD
nema.ramkhelawan@rmb.co.za very edgy. USD/ZAR still seems happy in its broad 6.55 – 7.20 range but this narrow
+27 11 282-8519 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 Dow Jones Index (RHS)


8.00 9,000

10,000
7.50

11,000
7.00
12,000

6.50
13,000

6.00 14,000
Jan-10 Jul-10 Jan-11 Jul-11

Source: Reuters, RMB FICC Research


Data as at June 2011

RMB FICC Research Please see the last page for the disclaimer 1
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

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

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

RMB FICC Research Please see the last page for the disclaimer 3
USD/ZAR and EUR/USD over the past week USD/ZAR over the past year

7.00 USD/ZAR 1.410


8.00
EUR/USD (RHS) 1.420
6.90
7.70
1.430
6.80 7.40
1.440
6.70 7.10
1.450

6.60 6.80
1.460

6.50 1.470 6.50


Tue Wed Thu Fri Mon Tue 7-Jun 7-Sep 7-Dec 7-Mar 7-Jun

% change Maturity
1
Currency rates Last 1-day 1-week 1-month Outright forwards 1-m 3-m 6-m 12-m
ZAR 6.779 1.33 -0.41 1.70 ZAR 6.800 6.860 6.950 7.140
EUR/ZAR 9.904 1.16 1.08 3.85 EUR/ZAR 9.92 9.99 10.09 10.30
GBP/ZAR 11.084 0.79 -1.00 1.60 GBP/ZAR 11.11 11.20 11.33 11.60
ZAR/JPY 11.844 -1.26 -1.10 -2.08 ZAR/JPY 11.80 11.69 11.53 11.20
2
EUR 1.461 0.17 1.50 2.11 Money market rates (%)
JPY 80.29 0.05 -1.51 -0.41 JIBAR 5.5 5.575 5.84 6.365
GBP 1.635 -0.54 0.60 0.10 bp change 1 0.0 0.0 0.0 -1.0
CHF 0.835 0.02 -2.25 -4.98 LIBOR 0.190 0.252 0.401 0.725
Commodities bp change 1 0.0 0.0 0.0 -0.2
Gold US$/oz 1,544.6 -0.03 0.73 3.34 EURIBOR 1.438 1.438 1.719 2.140
Platinum US$/oz 1,807.7 -1.01 -1.06 1.20 bp change 1 1.2 1.4 1.7 2.1
Brent oil US$/pb 116.3 0.43 -1.72 1.54 Implied option volatilities (%)
CRB Index 345.4 -3.91 -3.91 -3.91 ZAR 13.85 14.10 14.60 14.90
Equity indices bp change 1 -5.0 -30.0 0.0 -15.0
Dow 12,090 -0.50 -3.82 -4.34 EUR/ZAR 11.55 11.95 12.50 12.95
bp change 1
NASDAQ 2,274 -0.78 -4.13 -4.56 0.0 0.0 0.0 0.0
S&P500 1,286 -1.08 -4.39 -4.03
FTSE 5,863 0.14 -2.12 -1.90 Maturity
FRAs (%) 2
DAX 7,085 -0.34 -2.87 -5.44 1X4 3X6 6X9 12X15
Nikkei 225 9,426 0.48 -2.76 -4.40 ZAR FRAs 5.540 5.600 5.950 6.560
SA Top 40 28,277 0.00 -3.41 -1.22 bp change 1 -1.0 -2.0 -5.0 -3.0
SA All share 31,578 0.01 -3.03 -0.94 USD FRAs 0.262 0.313 0.360 0.555
MSCI - World 337.2 -0.75 -3.08 -3.32 bp change 1 0.0 0.1 -1.9 -0.7
MSCI - EM free 1,149.0 -0.56 -1.62 -1.23 EUR FRAs 1.530 1.662 1.860 2.086
2
Bond yields (%) bp change 1 0.0 -3.8 -2.0 -3.4
R186 8.415 1.0 -10.1 -19.7 Notes:
R157 7.430 0.0 -11.2 -15.9 Data as of South African time (GMT +2) 07-Jun 07:21
US 2-year 0.429 -0.4 -4.0 -12.5 Source: Reuters, I-Net Bridge, RMB FM Research
US 10-year 3.002 0.9 -5.7 -14.7 Prices are bid side and are indicative only
SA 10-year Yankee 4.457 0.0 0.0 0.0 1 Changes from 6am SA time the previous working day
3
Sovereign spread 163 -0.9 5.7 14.7 2 Bond, short-term rates and FRA changes are in basis points
4
Currency spread 373 0.0 -2.1 -16.2 3 Yankee spread in bp over 10-year US Treasuries
4 10-year SA government bond spread in bp over Yankee

4 RMB FICC Research Please see the last page for the disclaimer
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6 RMB FICC Research Please see the last page for the disclaimer
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RMB FICC Research 7

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