March 07, 2023

Currency News

MyCURRENCY News | Week 10 2023

MyCURRENCY News | Week 10 2023

What we know

The steady depreciation of the ZAR through February was not easy to stomach, though the cherry on top was when it culminated with our grey listing. From the lows in February of R16.95/USD we moved all the way up to R18.51/USD, a ‘measly’ 9.25% move, with the chart resembling a stepladder. It’s a month we’d happily sweep under the rug whilst we look to March for a glimpse of any positive news.

Sadly, there’s no sign of any obvious positive catalyst at the moment, barring of course that the initial movement to R18.50/USD on the back of our grey listing was seemingly an emotional response by traders – though that shouldn’t surprise us anymore. We were able to get back to trading just above the R18.00/USD level before finding some consolidation. 

The external factors moving the market at present are all apparently intertwined and so there’s often a domino effect when one issue flares up. On the geo-political front, US-China relations are being tested with two issues at the forefront – the FBI’s research that identified the most likely cause of Covid-19 as a leak which is believed to have stemmed from a Chinese lab. The other would be the continued pressure from the US to thwart any military supplies reaching Russia. The Chinese are believed to be providing non-military goods such as drones, but vehemently deny supplying goods of any nature. This has brought the two countries to a head with ultimatums being spilled this week as tensions rise.  

What others say

MoneywebNersa’s secret U-turn on Eskom gas generation

“Energy regulator Nersa recently decided to concur with Minister of Mineral Resources and Energy Gwede Mantashe’s approval of an Eskom request to build a 3 000 megawatt (MW) gas power station in Richards Bay.”

BloombergRamaphosa revamps cabinet as South Africa faces power crisis

“The shakeup comes more than two months after Ramaphosa comfortably won a second term as leader of the governing African National Congress, a victory that gave him more scope to appoint allies to key posts and sideline his opponents. With elections scheduled for next year and opinion polls showing the ANC risks losing the majority it’s held since apartheid ended in 1994, he needs to improve his administration’s response to rolling blackouts and rampant unemployment to bolster his chances of securing another term.”

ReutersChina warns US against suppressing it or risk ‘conflict’

“The U.S. should change its recent mistaken policies towards China or “conflict and confrontation” will follow, China’s foreign minister said on Tuesday, while reiterating Beijing’s call for dialogue to end the conflict in Ukraine.”

Visual CapitalistWhich countries are buying Russian fossil fuels?

“According to estimates from the Centre for Research on Energy and Clean Air (CREA), since the invasion started about a year ago, Russia has made more than $315 billion in revenue from fossil fuel exports around the world, with nearly half ($149 billion) coming from EU nations.”

What we think

Last week we said that “The trend over the past month has been nothing but pain for the ZAR, with us peaking at R18.49/USD – it remains to be seen if we will breakthrough the R18.50/USD level and continue the downwind spiral. If we manage to stay below, we would hope to consolidate and form a trading channel before a slow ZAR appreciation to slightly less elevated levels.”

This morning we had local GDP for the final quarter of 2022 being released.  The figure disappointed both quarter-on-quarter (-1.3% vs -0.4% expected) as well as year-on-year (0.9% vs 2.2% expected). The market’s initial reaction was for the Rand to weaken 5c and we fear that given the extensive loadshedding this quarter, this may become a pattern going forward.  The Fed chair, Powell, speaks once again this evening which may guide markets somewhat before the end of this week. Our cabinet reshuffle left a lot to be desired and so there’s not been much impact on the ZAR this morning. Our thoughts are that the market sees it as too little too late.

We have eagerly awaited the US Non Farm Payroll release for March as last week’s data left us sitting around with only partial direction. This Friday has expectations for a more modest showing of only 200k jobs being added compared to the previous 517k in February. A larger than expected print would again push out any expectations of interest rates easing.

With the ZAR having come back to slightly less elevated levels, we are now flirting with the lower end of the most recent trading channel. Should there be a move to risk-on sentiment, we may see a test closer key R18.00/USD level.

Our range for the week: R18.10/USD – R18.50/USD.

Have a great week ahead.