May 30, 2023
MyCURRENCY News | Week 22 2023
What we know
It’s often said that the trend is your friend when trying to predict future equity and currency movements, however, the rand has been neither predictable nor friendly this year, let alone this past week. We opened last week around the R19.50/USD level before strengthening ever so much down to the R19.15/USD – R19.30/USD range. That is, until Thursday afternoon, where not even our knight in shining armour (SARB Governor Kganyago) could save us despite the 0.5% repo rate hike. We ended up swinging weaker by about 3% and reached a high of R19.81/USD.
A case of damned if you do, damned if you don’t, it feels as though we’re stuck in an episode of looney tunes where Wile E. Coyote was knocked sideways by a boulder and has been left with stars spinning above his head while trying to find his bearings once again. Kganyago’s team voted unanimously to raise rates by 0.5% in anticipation of exacerbated upward inflation pressure, most notably the weak exchange rates impact on our fuel prices which has a trickle-down effect on 99% of goods in SA.
Last week there was a reshuffle, but not the kind we’re used to. Instead of the usual changing of the guard, Ramaphosa shifted powers from Mantashe to Ramokgopa – this would seemingly be an improvement since the latter has fewer ties to the coal industry and would hopefully be able to speed up new energy procurement that is not just another Karpowership fiasco in the making. Though, just like with any government initiative, the proof will be in the pudding.
What others say
Bloomberg – Biden, McCarthy voice confidence debt deal will pass in time
“The bill will suspend the debt ceiling until January 1, 2025, likely putting off another fight over federal borrowing authority until the middle of that year. In exchange for Republican votes for the suspension, Democrats agreed to cap federal spending for the next two years.”
Visual Capitalist – Mapped: Diabetes rates by country in 2021
“One of the leading causes of death and disability globally, over half a billion people are living with diabetes today. The World Bank’s IDF Diabetes Atlas reveals that diabetes was responsible for 6.7 million deaths in 2021 alone.”
Daily Maverick – South Africa risks becoming a failed state, warn business leaders
“MTN recently spent R695-million to mitigate the impact of blackouts, Vodacom spent R300-million, Pick n Pay R522-million, Shoprite R560-million and Woolworths R90-million. These eye-watering amounts of money could have gone into expanding company operations, and in the process created new jobs and boosted investments in the economy.”
What we think
Last week we said that “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.”
The are a two main news events this week, namely, EU unemployment and inflation on Thursday followed by the revered US Non Farm Payroll and unemployment on Friday. The US Fed members will be speaking throughout Wednesday and will hopefully give us some insight into what the Fed’s policy announcement may look like, though they are notorious for being tight lipped in that regard.
The rand is fully into unchartered territory at present and so we expect movements to remain volatile as the market is still extremely skittish as we wait for it to settle down somewhat. Any further pressure on the rand may lead to a test closer to R20.00/USD as market participants are more than happy to go long into USD for the added safe haven benefit.
Our range for the week: R19.45/USD – R19.85/USD.
Have a great week ahead.