May 31, 2022
MyCURRENCY News | Week 22 2022
What we know
Last week we found ourselves having to contain our excitement as the Rand plotted a course directly for the key R15.50/USD level, optimistic that we would be seeing a breakthrough of said key level for the first time in over a month. We weren’t entirely wrong, but the Rand made us work for it as it first practiced its U-turn capabilities, re-testing the R15.85/USD level before nonchalantly running its way down to a low of R15.45/USD this Monday morning past.
It would be positive to see the Rand consolidate between R15.35/USD and R15.70/USD, but the Rand can be rather fickle, perhaps preferring to vault its way back up towards the R15.90/USD area. Looking back on the Rand and its performance over the past 12 months paints a painful picture, almost 2 Rand, or 15% weaker since we achieved lows around R13.42/USD – so, the greater trend over the long term seems to be pointing skyward.
As has become the norm of late, the Rand’s current resurgence can be attributed to forces well outside of our sphere of control here in SA. After the dramatic introduction of China’s Zero Covid Policy, global markets reeled with most risk assets feeling the pinch, ourselves included. Fortunately, we are finally starting to see the beginning of the end as restrictions are eased in mainland China. The USD has come under pressure as a result and we have seen the Dollar Index (DXY) dip below 102 points, with the EM Basket bouncing stronger in synchronised fashion.
Domestic optimism may diminish this week as government remains mute on furthering their cut on fuel levy prices. There will undoubtedly be long queues this evening as the masses scramble for the last rations of ‘cheap’ fuel. We also have our unemployment data out today for the 1st quarter which could prove to be a little unpleasant given the level of damage done to the KZN economy by floods in early February.
Speaking of market moving data, this Friday sees the US release their infamous NFP (Non-Farm Payroll) and unemployment numbers. Expectations are for a large decrease of nearly 100k to a meagre 320k. A higher print could again put the rand under pressure.
What others say
IB Times – Shanghai to lift ‘unreasonable’ curbs on firms, Beijing eases restrictions
“Shanghai said on Sunday “unreasonable” curbs on businesses will be removed from June 1 as it looks to lift its COVID-19 lockdown, while Beijing reopened parts of its public transport as well as some malls and other venues as infections stabilised.”
Bloomberg – Glencore bribery cases draw in billionaire former executives
“The US corruption and market manipulation cases against Glencore Plc include allegations about the conduct of two former executives who formed part of the inner circle of the trading house’s top management for over a decade — and walked away as billionaires.”
Daily Maverick – Will Godongwana extend the fuel levy reprieve or brace for inflationary pressures?
“Minister of Finance Enoch Godongwana has a tough choice to make: extend the temporary R1.50 fuel levy reduction to enable a softer increase in June, or claw back the levy reduction and watch inflationary pressures of a R2.70 to R3.20 increase in the price of petrol unfold.”
Visual Capitalist – The history of US energy independence
“Despite long being a leader in energy production, the U.S. has often still relied on oil imports to meet its growing needs. This “energy dependence” left the country and American consumers vulnerable to supply disruptions and oil price shocks.”
What we think
Last week we said “one reason for optimism on inflation is that commodity prices might be beginning to turn. The most realistic hope for this is in industrial metals, which received a massive boost in the first few days of Russia’s invasion of Ukraine. They’ve given up those freak gains while the slowdown in activity in China, exacerbated by Covid-zero shutdowns, has brought down demand for metals there.”
Based purely off local sentiment and our economic driving factors, it is difficult to justify the Rand’s strength at present. One should not discount how an unforeseen political play might upset the applecart and send shivers down the Rand.
However, the recent gains had by the Rand does seem to have eased some fears that the new normal would have been above R16/USD. For us, it appears that clients, with the eased volatility and slightly more enticing rates, are beginning to show more interest in moving funds offshore again, although perhaps hesitant to take a large bite of the proverbial apple.
Our range for the week is R15.35/USD – R15.85/USD.
Have a great week ahead.