May 27, 2024
MyCURRENCY News | Week 22 2024
What we know
Last week saw a slight reversal in the Rand strength present over the month of May. Markets opened at R18.13 and closed at R18.36 to the Dollar by Friday evening. The latter half of the week saw most of the reversal with the rand losing 40 cents between Wednesday and Thursday from a ten-month low on Tuesday.
This move came after the release of the Federal Open Market Committee (FOMC) minutes on Tuesday where concerns around the inflation rate remaining higher than expected and a consensus that inflation would need to come down significantly before rate cuts can be considered. Rates remaining higher for longer reinvigorated the Dollar which seems to have finally broken through some of the recent Rand optimism.
Despite the concerns around inflation and interest rates, the US had a positive week with almost all economic sectors showing growth month-on-month and exceeding the expected output figure giving the economy its best month in the last two years. This contributed to the Dollar strength in the latter part of the week.
Locally, we saw a second consecutive (and relatively substantial) month-on-month decline in inflation, but we are still above the 4,5% target rate of the Central Bank. The year-on-year figure decreased slightly from 5.3% to 5.2%. It seems that we will have to join the United States in the anticipation of a reprieve in the form of lower interest rates.
What others say
Reuters – South African rand weaker following Fed meeting minutes
“The South African rand weakened on Thursday, after Federal Reserve meeting minutes released on Wednesday hinted that interest rates will remain higher for longer in the world’s biggest economy.”
Moneyweb – S&P tracking South African election for investment outlook
“S&P Global Ratings said it’s closely monitoring the outcome of South Africa’s elections next week and subsequent government policies to address issues from crime to energy supply that have deterred investment.”
Reuters – China’s premier hails ‘new beginning’ with US-allied South Korea, Japan
“Chinese Premier Li Qiang praised what he called a restart in relations with Japan and South Korea as he met their leaders for the first three-way talks in four years on Monday, agreeing to revive trade and security dialogues hampered by global tensions.”
What we think
Last week we said…“Taking into consideration the culmination of US data,… the Dollar is in a position where we could see it begin to slide even further into the future, leaving space for the Rand to push stronger.”
We did see the Rand push stronger to levels that began to feel like a distant memory, but we are still very much at the mercy of Dollar sentiment despite the Rand optimism. As we saw last week, when the Dollar regained its footing, we quickly slipped back down the slope that we worked so hard to climb in prior weeks.
South Africa’s Monetary Policy Committee (MPC) will publish its interest rate decision on Thursday. After last week’s inflation figure, expectations are that the rate will remain unchanged at 8.25%.
With election week finally upon us, it feels as if we are on a knife’s edge, waiting to see in which direction the exchange rate will set off following the results of this year’s pivotal national election. However, until results are released we are likely to see lower volatility with any moves coming off the back of the interest rate decision.
Our range for the week is 18.20-18.70.
Have a great week ahead.