May 04, 2022

Currency News

MyCURRENCY News | Week 18 2022

MyCURRENCY News | Week 18 2022

What we know

It’s not just because we’re recovering from the long weekend that this week’s commentary is going to be short, but rather due to there being very little new to say.

While the initial Rand sell-off against the USD from 14.65 – 15.60 was accompanied by similar weakness against the GBP and EUR, the follow-through that we saw last week was mainly a result of USD strength, as we actually gained slightly against both the EUR and GBP. To illustrate this point, from the previous Friday’s highs to last Friday’s best levels the Rand gained from 16.96 to 16.56 against the EUR, and from 20.25 to 19.74 against the GBP.

Conversely, the week was just a slow grind weaker for ZAR.USD with each day barring Friday seeing new highs posted, topping out at 16.13 at the worst levels. This was in the face of the USD reaching its strongest levels in 5 years, levels which were previously seen back in 2002.

The reason for this is of course by now well known, with the hawkish shadow of a circling Fed darkening the economic and financial landscape. While a surprising drop in US GDP for the first quarter saw the USD briefly retreat, this did not last long with investors realising it will take more than one data point to reverse the current rate hiking path, which resumes tomorrow when the Fed is expected to announce a 0.5% hike. Friday’s Non-Farm Payroll data will also be watched very closely.


What others say

BloombergCiti Trader made error behind flash crash in Europe stocks

A trader at the U.S. firm made a mistake “inputting a transaction,” Citigroup said late last night, after a knee-jerk selloff in Swedish stocks in five minutes wreaked havoc in bourses from Paris to Warsaw, wiping out 300 billion euros ($315 billion) at one point. The bank said it identified the error “within minutes” and corrected it.

MoneywebInvestment perspectives – Key themes shaping this quarter

One of the most reliable recession indicators, being the US yield curve (specifically the difference between 10-year and 2-year bond yields) is flashing red, with the curve having inverted recently, which is adding to market worries. Fluctuations in the business cycle are normal, but what makes this time unique is that there is limited scope for policy intervention from central banks and governments, given the past decade of ultra-stimulative policy.

MediumHow investors can prepare for the changing world order

“We are witnessing the birth of Bretton Woods III — a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West. From the Bretton Woods era backed by gold bullion to Bretton Woods II backed by inside money, to Bretton Woods III backed by outside money.” – Zoltan Pozsar, global head of short-term interest rate strategy at the Credit Suisse investment bank.

Project SyndicateWhat the Shanghai lockdown tells us about China’s future

The fact that Beijing ultimately overruled the Shanghai leadership can be viewed as a sign that the centralisers are asserting their power over the proponents of decentralised decision-making. But who will shoulder the blame for the wide-ranging economic and social costs that resulted from the lockdown? Will it fall on Shanghai for letting infection rates rise, or on those who forced the city into the sudden lockdown? The answer will be an indication of the future of China’s recentralisation efforts.

What we think

Last week we wrote that “…from our perspective things may now be overdone in the short-term and we feel a small pull-back is in order. Two important caveats to this view do exist however: first, the next obvious big figure for the ZAR.USD is 16.00 and even a small rally in the USD from here, could make such a test likely, so we cannot discount further weakness.”

And so our wait for a Rand pull-back will need to continue for a while longer and this wasn’t helped by yesterday’s price action while we were off, as the Rand moved from 15.75 to as high as 16.19 yesterday afternoon.

The Fed’s decision tomorrow and, more importantly, the tone of any statement and answering of questions, is clearly the key event for the week ahead. If we’re going to see any fireworks, they will be launched by Jerome Hayden Powell. We do struggle to see how the Fed could project a more hawkish tone than what they’ve already done and as such, do err on the side of the USD selling off slightly following the rate decision.

Our range for the week is 15.75 – 16.10.

Have a great week ahead.