April 03, 2023
MyCURRENCY News | Week 14 2023
What we know
Well, the stars did seemingly align last week – though not for reasons we, nor the rest of the market, had expected. The SARB raised our repo rate by a whopping 50bps, bringing it to a rather steep rate of 7.75%. The SARB pointed to “sticky inflation, sluggish growth and now elevated financial stability risks” as the key motivational factors behind their surprise hike.
The rand has, according to our subjective opinion, been trading at excessively weak levels for most of this year. These levels seemed unsustainable, but the ZAR was just not able to breakthrough R18.00/USD level, despite multiple attempts. It needed to consolidate and receive positive news at a time when international markets were subdued. Previously, all major currency movements were being directed by inflation and interest rate data from the US, which was drowning out the limited positive news released locally. Generally, our woes were only compounded when we had bad news domestically as well as offshore, which saw us trading at dizzying levels north of R18.50/USD.
Despite the SARB’s negative outlook, the greater than expected rate hike was the impetus the rand needed in order to triumph and trade all the way down to R17.73/USD. The rate hike, which was initially viewed as excessive, now in hindsight seems to have been the prudent response given the information which has now been released to the public. The SARB’s general management style has been to front-run inflation when they see cause to – the main apparent benefit being a slower and more manageable increase in inflation when compared to the drastic increases seen in the US for example.
What others say
Moneyweb – Urgent action is needed to fix SA’s crumbling rail network
“South Africa’s 21 000km rail network used to be a matter of national pride, accounting for some 80% of Africa’s total network. This massively over-specced network needs to be pruned to no more than 5 500km and operated with the kind of financing and efficiency that the private sector, operating alongside Transnet, can bring, according to the Africa Rail Industry Association (Aria).”
Bloomberg – OPEC+ Makes shock million-barrel cut in new inflation risk
“It’s a significant reduction for a market where — despite the recent price fluctuations — supply was looking tight for the latter part of the year. Oil futures soared as much as 8% in New York on Monday while gasoline also gained, adding to inflationary pressures that may force central banks around the world to keep interest rates higher for longer.”
Reuters– Timeline: The shocking collapse of Silicon Valley Bank
“It’s a significant reduction for a market where — despite the recent price fluctuations — supply was looking tight for the latter part of the year. Oil futures soared as much as 8% in New York on Monday while gasoline also gained, adding to inflationary pressures that may force central banks around the world to keep interest rates higher for longer.”
Visual Capitalist – Mapped: How global housing prices have changed since 2010
“Houses fulfill a rare mix of necessity, utility, sentimentality, and for many, also act as a primary investment to build wealth. And it’s that last angle, combined with increasing demand in many countries, that is driving housing prices skyward.”
What we think
Last week we said that “we will be watching in the coming week to see if we are able to set a lower high for a 2nd consecutive time. This could hopefully lead us to a move back below R18/USD and fetch a R17 handle during April. Well, that’s what the optimist in us says – we will have to wait and see if the stars align.”
Even a broken clock is right twice a day, and we’re well aware that luck is the deciding factor when a market movement coincides with our general sentiment at the time. Right now, while we might feel that the momentum has swung in the rands favour, we are constantly on the lookout for any whiplash as the market settles following the explosive move stronger. We expect re-tests of the R18.00/USD level as the market digests the volatility and starts to set the next consolidatory channels.
Throughout the rest of the week we have multiple US Fed members speaking which is likely to mould market expectations re: the next Fed meeting. Otherwise, the week culminates with the US non-farm payroll and unemployment releases.
Our range for the week: 17.60/USD – R18.05/USD.
Have a great week ahead.