June 18, 2024

Currency News

MyCURRENCY News | Week 25 2024

MyCURRENCY News | Week 25 2024

What we know

Last week saw positive trading for the Rand against the dollar, ending the week at a rate of R18.31 on Friday afternoon, 53 cents lower than Monday’s open of R18.84. This strength resulted from the formation and first parliamentary sitting of the new “Government of National Unity.”

After a period of ‘wait and see’ leading up to the election, the results have led to the formation of a coalition government in South Africa. The ANC joining forces with the DA and other smaller parties was well received by financial markets and a significantly better outcome than a pact with the EFF and MK.

Last week’s Rand strength was solely dependent on significant positive sentiment around the local currency as the Rand was able to gain significant ground against the dollar, despite the Dollar index strengthening. The Dollar strength followed the FOMC meeting earlier in the week where the Fed announced that inflation remains higher than expected and maintained that it is too soon to begin cutting rates.

This is further supported by strong jobs data and low unemployment leading to an overall strong economy preventing a disinflationary environment. Ultimately the Fed have adjusted their forecast to include only one rate cut in 2024.

The ECB on the other hand were satisfied with inflation and reduced the interest rate by 25 basis points. The timing of this cut coinciding with the snap election called by Macron resulted in a weakening of the Euro.

What others say

Visual CapitalistThe World’s Largest Economies: Comparing the U.S. and China

“In this graphic, we provide insight into the world’s two biggest economies by comparing them across three key metrics: GDP, equity market valuation, and foreign direct investment (FDI).”

Daily MaverickGNU Dawn SA could have better economic prospects than Broken Britain

“It is arguably easier to imagine the South African economy recovering from years of load shedding and State Capture and returning to 3% GDP growth than a tired, sclerotic and divided UK.”

MoneywebSeventy-five cents and a Zimbabwean dinosaur

“Can you imagine living in a country where the largest denomination bank note in circulation is not worth even a single US dollar?”

What we think

Last week we said that “With interest rate cuts increasingly at play globally, if the US hold interest rates higher for longer, this is going to play in the Dollar’s favour, as investors can expect to keep higher returns on their dollar-denominated assets.”

With only one rate cut on the horizon for the Dollar while other major economies are considering cuts, Dollar assets will certainly be more attractive than ever.

The Bank of England will also be making a decision regarding rates this week and although a cut is not yet expected, markets will be on the lookout for hints as to how soon this can be expected. If the BOE indicate that rates will begin to come down, this will only strengthen the Dollar as a higher yielding asset while rates remain inflated.

Locally, the main driver in the market will be whether the newly formed Government of National Unity is able to bring about a real change and improvement for South Africans. Having survived three weeks post-election without load shedding, we will need to see how long this newfound positivity lasts.

Our range for the week is: R17.80 – 18.20.

Have a great week ahead.