May 23, 2023

Currency News

MyCURRENCY News | Week 21 2023

MyCURRENCY News | Week 21 2023

What we know

And just like that we’re all wishing we could have our comfortable R18.00/USD – R18.50/USD range back.  Indeed, just recently our own view was that it seemed more likely that we were going to break down through the bottom of that range, rather than weaken beyond the top-end.  

Unfortunately, all it took to break us out of those 3 months of relative calm was the revelation of yet another foot-in-mouth moment from government: as things stand, while we await further details regarding the arms-to-Russia scandal, the market seems to be punishing the Rand by about 5%, as we’ve settled into the R19.00/USD – R19.50/USD zone.  

It is a somewhat tense scenario at present, as the relative silence surrounding this debacle will need to be broken soon.  There must surely be some behind-the-scenes negotiations and politicking going on, as we find ourselves in the unenviable position of being stuck in the middle of the heavyweights contending The Cold War 2.0.  Something’s gotta give.

And bearing the brunt of it all, of course, are the 60 million people living in this country.  It’s hard not to feel as though we’re all attendees at the World’s largest circus, where the lights have gone out, the ringmaster left long ago and we’re just stuck watching the clowns continue with their inane performance, endlessly tripping each other up and pie-ing themselves in the face, with no concern for the consequences.  Oh, if those big hungry lions could just return for a snack!

It appears this week could bring an end to the US negotiations around their debt-ceiling, a partisan debate that seems to be becoming more frequent in the current ‘Us vs Them’ climate that has overwhelmed the country in the past decade or two.  It may be that markets have started to largely ignore the posturing around this issue; however, should a resolution lead to a USD bounce, that would of course push the USD.ZAR rate higher. 

The other big event this week arrives on Thursday with what will surely (?!) be the final domestic interest rate increase of the current hiking cycle.  Expectations are for a 0.25% increase in the repo rate to 8.00%; however, the risk here clearly lies to the upside with a 0.50% hike, given the messaging of the MPC over the past few months.  The problem in the current climate is whether this will have any positive impact on the Rand, given all the other issues we face, while it’s clear the economy will struggle further under even tighter monetary conditions.  Indeed, the worst case really would be that we see another 0.50% hike and a muted Rand response: a currency at near all-time lows, limited tools left with which to fight inflation and a continued squeezing of the domestic economy.  

Given the somber tone, we’ll refrain from mentioning load-shedding this week.  Promise. 

What others say

Visual CapitalistCharting the rise of America’s debt ceiling

“President Joe Biden argues that the debt ceiling should be increased without any strings attached. Adding to this, the sharp uptick in interest rates have been a clear reminder that rising debt levels can be precarious.”

Daily MaverickRamaphosa’s former adviser Bejani Chauke part of Africa’s Russia-Ukraine peace initiative

“Chauke first came to the fore as Ramaphosa’s campaign manager in the ANC leadership race in 2017, when Ramaphosa beat Nkosazana Dlamini Zuma. He has since been accused of paying ANC conference delegates in return for votes at the party’s 54th and 55th national conferences.”

BloombergRussia pushes India for help to avert Global Financial Isolation

“The Kremlin is pressuring governments including India behind the scenes, threatening to upend defence and energy deals unless they help block expected moves aimed at turning Russia into a financial pariah state over its invasion of Ukraine.”

What we think

Last week we said that “…it seems unlikely that the rand is capable of anything at the moment as it’s left licking its wounds following last week’s derailment. As such, market movements are likely to follow offshore markets, most notably those out of the US.”

While we started last week with a relative “recovery” from R19.50/USD to just under R19.00/USD, it’s clear that there’s little reason for a sustained Rand rally at present, absent some fairly major developments. We all know the various reasons the currency finds itself around all-time lows and it’s certainly not apparent that anything is about to change anytime soon.

So as per last week, we continue to expect our fate to be tied to global markets, with an anticipated range for the week of R19.00/USD – R19.50/USD.

Have a great week ahead.