April 11, 2023
MyCURRENCY News | Week 15 2023
What we know
One step forward and three steps back; the perpetual battle between a rand optimist and the rest of the market seemingly – where any optimism is swiftly rebuked by a rather petulant ZAR. We know the rand never makes moves lower or higher in a straight line, but rather in ‘waves’. We therefore anticipated a re-test of the key R18.00USD level but did not expect such a strong and sudden rejection as we South Africans wrapped up on Thursday in preparation for the long weekend.
The turbulence experienced whilst we were enjoying what feels like a well-deserved break was quite notable, as we had rocketed from R17.80/USD on Monday up to R18.30/USD by Thursday. The ZAR did seem to find its footing throughout the course of Friday, only for it to come fully undone on Monday and trade all the way up to R18.5350/USD. The only consolation from a technical point of view is that this high of R18.5350/USD is below the previous swing high on 21 March of R18.61/USD. Nothing is ever certain, but we again hope this means that +-R18.50/USD is the ceiling for the time being.
There appear to have been two catalysts that drove the ZAR weakness throughout Monday. The first being a depressing decline in Chinese price growth and lacklustre demand. This unfortunately puts a damper on emerging markets like our own who export a large part of their goods to the resource hungry country.
Secondly, the return to a higher load-shedding schedule and Ramokgopa’s announcement that we should be extending our coal power station’s useful lifespans using a disproportionately large chunk of taxpayer money. It’s a slap in the face as it contradicts multiple government policies already in place and would set a rather worrying trend of further policy incoherence – though that’s not straying too far from the road most traveled when looking back at our track record.
What others say
Daily Maverick – Extending life of ageing coal-fired stations – anti-renewables policy incoherence could cost trillions
“A week of turmoil, policy flip-flops and a return to higher levels of load shedding could have ended differently — it could have ended with a clear-cut plan by the minister of electricity to reassure a jittery nation that a practical solution is on hand. He could have built on the President’s July 2022 strategic breakthrough that prioritised the energy transition from a coal-based economy to a renewables-based economy.”
Bloomberg – End may be in sight for global rate-hike cycle as Fed nears peak
“With the first signs of dents in economic growth now visible, and fallout from financial-market tensions lingering, any pause by the Federal Reserve after at least one more increase in May could cement a turn in what has been the most aggressive the world has seen in decades.”
International Business Times – Oil Inches Up, Weighing OPEC+ Supply Cuts Against Rate Hike Fears
“Oil prices fell on Monday after rising for three straight weeks, after U.S. jobs data pointed to a tight labor market, heightening expectations of another Federal Reserve rate hike that could curb oil demand. Rate hike expectations boosted the U.S. dollar index on Monday and Tuesday, which weighed on oil prices as dollar strength makes oil more expensive for other currency holders.”
What we think
Last week we said that “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… while the week culminates with the US non-farm payroll and unemployment releases.”
The US NFP on Friday landed in-line with expectations and a decrease in their unemployment from 3.6% to 3.5%. This saw a small bit of volatility that ultimately ended in a meagre gain for the ZAR. Another variable that has peaked our interest once more is the price of crude oil. A spectacular 20% increase with it now trading at $85/barrel which should certainly see further pressure placed on producer inflation in South Africa as it filters into the economy.
We hope the move into R18.50/USD territory was a short term correction and that we will find our feet again – however, the main event risk lies with the US CPI release on Wednesday afternoon as well as the FOMC minutes that follow that evening. Less decisive, yet still important is our mining production data due on Thursday.
Our range for the week: R18.05/USD – R18.40/USD.
Have a great week ahead.