January 17, 2023

Currency News

MyCURRENCY News | Week 3 2023

MyCURRENCY News | Week 3 2023

What we know

The Rand continues to defy logic and hold its head, at least against the Dollar when compared with the major currencies. There was a strong reversal as we opened on Monday morning with the ZAR giving up its gains from the previous week, moving rapidly from R16.75/USD to R17.12/USD by midday. Apparently, the market was not too pleased with Cyril cancelling his trip to Davos along with the continuously deteriorating Eskom situation. Even with the ZAR having given up its recent gains, it sits in a much more palatable position when compared with December’s performance where we were trading regularly above R17.50/USD.

The economic and political state of affairs domestically leave much to be desired. There are often green shoots of optimism – with us hoping to stir up some of these at the World Economic Forum in Davos, and we would assume this would have been hampered by Ramaphosa’s early return to SA (for all the wrong reasons). Load-shedding has become untenable with records being broken in all the wrong fields; like continuous days of load-shedding. Go Eskom! 

What others say

BloombergChina’s population shrinks for first time since 1960s in seismic shift

“The population drop-off came much faster than previously expected, and could act as a brake on economic growth by slowing demand for goods such as new houses. Due to the decline, the Chinese economy may struggle to overtake the US in size and the nation could lose its status as the world’s most populous country to India this year.”

ReutersDavos 2023: Recession casts long shadow over opening of WEF summit

“Two-thirds of private and public sector chief economists surveyed by the WEF expect a global recession this year, with some 18% considering it “extremely likely” – more than twice as many as in the previous survey conducted in September 2022.”

Daily MaverickSouth Africans urged to use water sparingly as rolling blackouts hit precious resource

“Municipalities and water entities across South Africa have called on residents to use water sparingly as they battle continued high levels of rolling blackouts and increased demand for water as temperatures soar.”

What we think

Last week we wrote that “The USD weakness has continued into this week with the EURUSD and Dollar Index (DXY) showing the Dollar to be on the back foot – this sees us flirting once again with the R17.00/USD level. With a lack of data events until this Thursday, there may be a chance for the USDZAR to re-test the R16.80/USD level.”

Currencies are infamously hard to call due to the myriad of variables that feed into their day-to-day movements, and so were happy to put the above ‘correct call’ down to pure coincidence. What will spice things up this week is SA’s inflation print due Wednesday afternoon. Forecasts are for inflation to have eased which will hopefully soften the SARB’s hawkish outlook when they reconvene on 26 January for their MPC meet and to announce their interest rate decision. We already have some forecasts of a 0.5% hike, though this may be tapered by data events in the interim.

The old adage is that ‘the trend is your friend’ which is generally true of market sentiment, that is, until it swings violently and leaves you up the creek with no paddle. However, until proven wrong, the ZAR does still seem to be on a strengthening course from October last year. The USD had been tremendously overbought and the ZAR left stranded high and dry, so a correction has been on the cards for some time. The questions always remains, how long will it last, and how far will it go?

Our range for the week: R16.85/USD – R17.30/USD.

Have a great week ahead.