May 09, 2023
MyCURRENCY News | Week 19 2023
What we know
There’s a poem by Philip Levine titled “He Would Never Use One Word Where None Would Do”. Now while that poem has absolutely nothing to do with markets, the behaviour of the ZAR.USD has been so predictable over the past three months that it feels as though no further words are needed. Nevertheless, as this is a weekly commentary, there will be some words, albeit that we’ll keep it short.
The R18.00/USD – R18.50/USD range has remained very firmly intact as the world seems to remain in a holding pattern: waiting for clarity regarding Central Banks’ future rate trajectories; waiting for signs of a resolution to the current global geopolitical instability; waiting for positive trends in economic growth; waiting for stock market performance to pick up; and waiting nervously, locally at least, for what the rest of the year will bring in terms of loadshedding and the start of the political nonsense that will inevitably ramp up ahead of next year’s elections.
It does feel as though there’s an element of who’s going to blink first in terms of global interest rates: we saw the US and the EU raise rates by 0.25% last week as expected, a surprise 0.25% hike in Australia and we anticipate the BoE will announce a 0.25% increase on Thursday. The expectation in SA is also for a 0.25% hike on 25 May. In the current environment markets react to the announcements, look for concrete hints as to what the future may hold, and then resume trading in the existing ranges. Even last week’s strong Non Farm Payroll release, keenly anticipated and frequently the catalyst for much volatility, simply saw the USD weaken 0.40% initially, reverse that, and then continue along as though nothing had happened – as we said earlier, a holding pattern.
What others say
Bloomberg – Emerging markets enter high-anxiety phase with Turkey vote
“The potential shifts in the political landscape of emerging markets this year are putting investors on edge, with a slew of upcoming elections adding to pressure on flailing bonds, stocks and currencies.”
Economic Times – Crude oil tanks to $70, but cut in pump prices unlikely soon
“If prices stay low for long and its benefits percolate down to the real economy, it will make central banks less aggressive on rate hikes”
Bloomberg – UBS to overhaul board after Credit Suisse deal
“Koerner, a veteran of both lenders who unsuccessfully tried to stabilize Credit Suisse over the past nine months, will oversee the latter’s operating businesses as UBS plans to integrate them over time, according to a statement on Tuesday.”
Reuters – China’s shrinking imports, slower exports growth darken economic outlook
“China’s imports contracted sharply in April, while exports rose at a slower pace, reinforcing signs of feeble domestic demand despite the lifting of COVID curbs and heaping pressure on an economy already struggling in the face of cooling global growth.”
What we think
Two weeks ago we wrote that we continued to hold the view 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.”
The past week’s price action has shaken this view somewhat, as the ZAR.USD has retested R18.50/USD and remained towards the higher end of our recent range. We’re not sure this was explicitly covered in Economics 101; however, we’re going to put forward our own economic theory: The currencies of economies with stable and adequate energy supplies, will outperform those without stable and adequate energy supplies.
Hardly rocket science.
Our somewhat gloomy range for the week: R18.30/USD – 18.65/USD.
Have a great week ahead.