May 07, 2024

Currency News

MyCURRENCY News | Week 19 2024

MyCURRENCY News | Week 19 2024

What we know

It’s becoming increasingly challenging to write these weekly commentaries, in a market where the Rand will sell off 4% – 5% in a fortnight, only to fully recover the following fortnight and then repeat this pattern over and over. In other words, apparent periods of strength or weakness are frequently simply the result of the unwinding of the previous period’s losses or gains, rather than being particularly newsworthy in and of themselves.

It’s been a year or two in which we’ve constantly had to repeat the fact that, for the time being, the short- and medium-term moves in the ZAR.USD are being predominantly determined by the fortunes of the USD itself, rather than having much to do with South Africa’s political, economic or social conditions. In turn, USD trading is being largely dictated by the market’s outlook regarding the timing and scale of the Fed’s interest rate cutting cycle, a view which chops and changes continuously in response to the bullishness or bearishness of economic data releases. Outside of this, current global geopolitical tensions and changes, may also be providing an underpin to the USD, as is often seen in times of uncertainty and risk aversion.

The net result is that the Rand has closed every week since the start of August 2023 (9 months) within an 18.25 – 19.35 range against the USD. Given how much volatility we’ve seen during that time it’s fair to suggest that this 6% difference between the high and low closes may be surprisingly small for many.

Locally, while much focus is on the election in 3 weeks, in the absence of any inflammatory or controversial electioneering the market doesn’t appear to be positioning itself one way or the other, perhaps a sign that expectations are for nothing too different from what we’ve become used to since Cyril limply took over the reigns in 2018. At least the near miraculous (and not at all coincidental) pre-election absence of load-shedding continues to bring some early winter cheer.

What others say

Daily MaverickFood prices beginning to stabilise, says Competition Commission

“While lower food inflation is a positive sign, the commission said food prices were still rising at a rate which could threaten food security and that cost pressures – due to the energy crisis, transport expenses, and the impact of the drought – were likely to continue. This will see consumers continuing to economise by buying cheaper alternatives.”

CNBC AfricaSouth African rand strengthens as Fed keeps rates on hold

“The South African rand strengthened on Thursday after the U.S. Federal Reserve held interest rates steady as expected and reiterated inflationary concerns.”

The GuardianWith six months to go, the US election is more unpredictable than ever

“Depending on the expert, either Biden or Trump is likely to pull ahead, but this election race is playing out in an unstable landscape.”

BBCUS economic growth slows but inflation grows

“The US economy grew by less than forecast in the first three months of this year but inflation gathered pace, which could delay an interest rate cut.”

What we think

Last week we said that, “…the non-farm payroll releases have been notoriously hard to call of late, with the market frequently being caught on the wrong side of the USD reaction. We’ll be right eventually, so let’s flip a coin and hope that we finally get a weaker than expected NFP number this Friday – that really would allow for a bit of positive ZAR.USD impetus.”

There are times when it’s easy to mistake a broken clock for a crystal ball. So, while it was great to see the above come to pass – Non-Farm Payrolls and the Unemployment Rate both disappointed, pushing the Dollar Index to its weakest level in almost a month and the ZAR.USD to within 12c of its best levels in 2024 – we’ve been calling for soft USD data for some time, while being proven wrong fairly frequently.

We do now need to see more weak US data in the coming weeks and months, which could then potentially allow the Rand to eye the big 18.00 figure. That won’t be this week, though, as there is very little scheduled data out of the US. For those with an eye on the GBP, however, the BoE interest rate decision and GDP data release will be key.

Range for the week: 18.20 – 18.60

Have a great week ahead.