June 13, 2023
MyCURRENCY News | Week 24 2023
What we know
The ZAR’s latest rally feels akin to a toddler being caught with their hand in the cookie jar, even though they are not meant to be there, their arm continues to inch deeper into the jar searching for salvation – and so too the rand has continued its rally well beyond what we would have thought. With SA’s perpetual core fundamental issues around graft, energy security and the current geo-political tight rope we are walking (albeit leaning heavily to one side), its surprising to see the rand rally so strongly on a combination of small positive news events.
Hindsight is a powerful tool, so it’s easy now to recognise the rand was in tremendously oversold territory when it reached as high as R19.90/USD, though with sentiment seemingly at an all time low, the speed of the recovery is what was so surprising – highlighting once more the fickleness of the ZAR. There were a few events that ostensibly led to the rally: SA narrowed its trade deficit from -R170b to -R66b while also managing to print positive a 3.4% manufacturing production number. Though, the most notable push came from the almost complete eradication of loadshedding, at least for now.
The US dollar did also take it’s foot off the pedal over the same period, at first stagnating after its rally through May, then reversing part of its gains following their weekly jobless claims climbing sharply higher from 28k to 261k. This also hopefully points to an easing of the interest cycle in the US with this Thursday’s Fed interest rate decision expected to come in unchanged at 5.25%.
What others say
News24 – Top US lawmakers demand SA be punished for Russian support
“A group of both US Democratic and Republican lawmakers have asked the White House to move this year’s African Growth and Opportunity Act (AGOA) summit away from South Africa, as they warn that the country looks set to lose its AGOA status.”
Moneyweb – Alarm bells ring as local investors cool on SA’s debt
“Domestic investors are demanding ever-higher yields as foreigners pull back from the market, just as the National Treasury gears up to refinance almost R1 trillion of debt over the next three years. That’s raised alarm bells at the South African Reserve Bank, which warned last month that the growing reluctance from domestic investors to continue absorbing government issuance could drive borrowing costs even higher.”
Bloomberg – Return of El Niño threatens new levels of economic destruction
“The shift to a warming phase from the cooler La Niña can generate chaos, especially in fast-growing emerging economies. Power grids strain and blackouts become more frequent. Extreme heat creates public health emergencies, while drought adds to fire risks. Crops are lost, roads are flooded and homes are destroyed.”
What we think
Last week we said that “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.”
We’re always happy to be wrong, especially when it’s following a massive rally where the ZAR has gained 7%. However, we are still cautious about being overly optimistic as the volatility in the currency is sky high at present. It does feel as though some one has been slowly pulling a rubber band back as we’ve run stronger on the USDZAR and that it would only be natural to bounce back somewhat.
With the US in the spotlight this week, if we are able to keep loadshedding at bay we may be able to create a new trading channel below R19.00/USD and hopefully form a new resistance level, helping keep us at these less nauseating rates and preventing another jolt back up.
Our range for the week: R18.45/USD – R18.90/USD.
Have a great week ahead.