July 10, 2023
MyCURRENCY News | Week 28 2023
What we know
The Rand starts this week recovering from a bout of whiplash caused by last week’s volatility. Having initially traded stronger from R18.82/USD to just under R18.60/USD on Tuesday, – following hawkish minutes from the Fed – saw a move back as high as R19.15/USD on Friday, and now a rally back down to R18.76/USD.
Despite this, it’s worth remembering that the latest bout of weakness follows the rally all the way from R19.92/USD back down to R18.12/USD and appears to be on the back of a move from risk-on to risk-off sentiment, rather than being South Africa specific.
Having seen clients enjoy the (relative) Rand recovery during June, with our volumes picking up nicely with the rate in the lower R18.00’s/USD, this sell-off once again reminds us how susceptible the Rand is to bouts of weakness and that client’s should not try to get “too cute” when the currency does move in their favour.
Having eased off somewhat of late, loadshedding is back in focus again on the back of failing generating units leading to a slight increase in loadshedding hours.
Inflationary expectations have also risen, which may be pointing towards the SARB continuing its recent rate hikes. The obvious concern here is that we see a replay of the past rate hikes where we enjoy no improvement in our exchange rate, a limited impact on inflation and further pressure on the economy and the man on the street – the “worst of both worlds”.
What others say
News24 – End of load shedding ‘within horizon’: Ramokgopa
“He said more than 100 best generation experts from Eskom, government and private sector have been mobilised and deployed at the worst-performing power stations to boost output.”
Reuters – Oil eases ahead of China, US data, but OPEC+ cuts limits slide
“The oil benchmarks gained more than 4% last week to touch their highest marks since May, rising for a second straight week after the world’s biggest oil exporters Saudi Arabia and Russia pledged to deepen supply cuts in August.”
Bloomberg – Fed minutes reveal divisions over decision to pause in June
“Federal Reserve officials struck a tenuous agreement to pause interest-rate increases at their June meeting, all but committing to hike again later this month in a bid to keep fighting stubborn inflation.”
What we think
Last week we said that “expectations are for a further reduction in added jobs in line with rising US unemployment which will start to sculpt forward guidance regarding the Fed’s pending interest rate decisions.”
The all-important Non-Farm Payroll figure printed at 209k which was 15k less jobs compared to the forecast. This data point once again shows the battle the Fed faces, in balancing rate hikes while combating inflation and encouraging economic growth. Despite the weak NFP release, having paused in June the expectation is for a 0.25% hike in July, which will continue to cushion the USD.
With no local data due this week, the Rand’s fate will lie in the hands of global data releases, in particular inflation figures out of the USD.
Our range for the week: R18.65/USD – R19.20/USD.
Have a great week ahead.