June 06, 2023
MyCURRENCY News | Week 23 2023
What we know
Friday saw a notable focus on the USD, driven by a remarkable surge in job numbers. Non-Farm payrolls surpassed expectations, increasing by 339,000 compared to the forecasted 193,000. While accompanied by a higher unemployment rate, the USD has started the new week stronger against its major trading partners.
Despite this, the Rand is currently trading at R19.39/USD, following its climb to a peak of R19.91/USD last week, narrowly missing the projected R20.00/USD handle. The recent pullback provides a much-needed respite as we anticipate the next developments in the ongoing #LadyRussiagate saga in the US.
As mentioned last week, following the repo rate hike, we observed a subsequent weakening of the Rand. This trend highlights the challenges our government faces in addressing the country’s declining state, where discussions surrounding basic necessities are increasingly prominent in our political landscape.
Paraphrasing Electricity Minister Ramokgopa, South Africa is bracing itself to survive rather than thrive this winter due to the ongoing challenges of load-shedding. However, there is a glimmer of hope as Ramokgopa has the power to involve the private sector in power generation. He has also mentioned two Hybrid projects that Eskom will be initiating to alleviate a portion of the energy crisis. Despite these efforts, it is important to note that we have not yet witnessed any significant reduction in power cuts.
Last week, several headlines emerged questioning the possibility and severity of potential sanctions against South Africa by the USA, contributing to a sombre and anxious atmosphere. While the likelihood of some form of sanctions cannot be dismissed, we believe that more extreme measures mentioned, such as South Africa’s removal from the SWIFT system, are unlikely. Nonetheless, we were perplexed by the President’s choice to withhold the findings of the recent Russian arms panel from the public. Unless this decision implies an admission of guilt, it appears unusual to keep such information hidden.
What others say
Daily Maverick – Fikile Mbalula flipped a Sunday ‘ace’ card in the Karpowership poker saga, but does he have a winning hand?
“In his last noteworthy act as the Minister of Transport, Fikile Mbalula interrupted his weekend to sign a crucial document to ensure that the Turkish-owned Karpowership group gets unfettered rights to park gas ships in three major harbours for 20 years.”
IB Times – Zelensky warns ‘Large Number’ Of Ukrainian soldiers ‘Will Die’ without US Patriot missile systems
“Currently, Zelensky said Kyiv has at least two Patriot missile batteries but added that he would have liked to have as many as 50. The Patriot is the only system capable of intercepting some of the advanced missiles launched by the Russian army.”
Reuters – France rolls out the red carpet for EV battery factories
“Interviews with 10 government officials and executives involved in the investment decisions show that France rolled out the red carpet, offering battery makers generous subsidies thanks to a relaxation of EU state aid rules for green energy projects – along with some personal lobbying by Macron.”
Visual Capitalist – Comparing military spend around the world
“In Ukraine’s case, its high ranking shows how quickly priorities can change. From 2018 to 2021, the country spent 3.2-3.8% of its GDP on its military, but the outbreak of war with Russia saw its expenditures jump to one-third of economic output.”
What we think
Last week we said… “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.”
Having seen the Rand recover a few times after testing the R19.80-19.85/USD level, the early move on Thursday from R19.72/USD to R19.92/USD was quite concerning, as it looked then as though a test of the R20.00/USD mark may be inevitable. Fortunately, that move was quite strongly rejected, hinting that a pullback may be on the cards. Thankfully that has so far proven true, as we’ve retraced all the way to R19.35/USD at the time of writing.
We are somewhat surprised by this strength, given we’re nowhere closer to a resolution of the arms accusations (and in fact seem to be hiding what we do know); however, we do also acknowledge that even when overall sentiment swings heavily in one direction, there will be pull-backs and rallies within the bigger trend. Whether this is a temporary reprieve, or the start of a larger rally remains to be seen – unfortunately at the moment we suspect that current conditions favour the former.
Our range for the week: R19.20/USD – R19.60/USD.
Have a great week ahead.