April 25, 2023

Currency News

MyCURRENCY News | Week 17 2023

MyCURRENCY News | Week 17 2023

What we know

As the Rand starts the week on the back foot against the dollar, a key level we will be hoping to stay within is the R18.32/USD level that provided resistance last week.  That level represents an encouraging trend of seeing lower highs following bouts of Rand weakness and leaves us hopeful that the worst may be behind us in the short-term.  While the range of 18.00/USD – 18.50/USD remains very much intact, the probability of a break below 18.00/USD, rather than to the top-side, is increasing. 

We still feel that the USD remains potentially vulnerable, as it continues to trade close to its yearly lows, when compared to the basket average of its major trading partners.  This suggests that, while the Rand’s intrinsic problems see it struggle against the GBP, EUR and CHF, the possibility of a return to a 17 handle against the USD remains. 

As we enjoy a multitude of changes in SA, from summer sunsets to misty winter mornings, the one thing holding constant is our loadshedding schedule – relentlessly leaving us with, at times, close to 12 hours without power.  Globally, it remains a perpetual battle between rate hikes and inflation and whose economy can recover the fastest.  In South Africa, currency weakness and the worsening energy power crisis continues to put inflationary pressure on our economy. 

As Chinese manufacturers move some of their supply-chains out of the country, we see this movement as a reaction to geopolitical risks with the US, and rising costs of production are pushing them to look at alternatives, which could result in some emerging market strength in the coming months. 

Investors are generally quite pessimistic about the US Dollar, and not only pessimistic on the USD but optimistic on the Yuan as the driver of dollar weakness as we see an ongoing trade war between these two countries.  Predictions of a large-scale fundamental movement away from the US dollar are nothing new, yet seemingly never come to fruition.  As we see predictions that the USD reserves held globally will decrease by around 8%, the question becomes:  will it be different this time?

What others say

Trading EconomicsSouth Africa Government Bond 10Y

“South African annual inflation accelerated for the second month in March to 7.1%, driven by a steep increase in food prices, which could prompt the Reserve Bank to prolong its tightening cycle with an at least 25 basis hike at its May meeting.”

Business InsiderEven Chinese companies are moving supply chains out China to avoid geopolitical risks

“While Western countries have already been doing this since 2018 after then-President Donald Trump launched a trade war against China, homegrown companies from the manufacturing giant are now following in their footsteps.”

ReutersSouth African rand starts week on back foot as dollar gains

“South Africa’s benchmark 2030 government bond was marginally weaker in early deals, with the yield up 1.5 basis points to 10.135%.”

Investing.comFour reasons why investors expect US dollar to keep sliding

“Professional investors see the dollar sliding even further from last year’s two-decade highs, as the market has under-priced the Federal Reserve’s oncoming easing cycle.”

What we think

Last week we wrote that “…the only positive we can find at the moment is that the recent sell-offs in the Rand have resulted in lower highs against the USD, suggesting there may be some resistance to a significant slide in our currency.”  

We do continue to hold this view; however, with US GDP releasing on Thursday and the Fed expected to hike rates again next Wednesday, combined with a truncated trading week, volatility may tick up over the next few days.  

Barring any unforeseen Eskom catastrophe, we do feel that potential USD weakness and a break below its recent lows, could point to near-term Rand gains.  

Our range for the week:  R17.90/USD – R18.30/USD.

Have a great week ahead.