July 25, 2023

Currency News

MyCURRENCY News | Week 30 2023

MyCURRENCY News | Week 30 2023

What we know

It’s a bit early to call as there are still a few jitters in the market at the moment; however, the USDZAR seems to be forming a trading channel between R17.70/USD and R18.05/USD. Given that the trading channel is in its infancy, this leaves both the ceiling and support levels, which only span 35 cents, in the firing line should the USDZAR throw a tantrum. We know the USDZAR can quite easily, even on a good day, trade in a 40 cent range.

Apprehensiveness aside, the ZAR’s push stronger on Monday was something of a head scratcher. Last week’s gains were mostly on the back of the DXY (US dollar Index) paring its gains across the board as inflation and global recessionary fears receded, with the resulting risk-on sentiment permeating throughout global markets. Monday, however, saw the correlation between a weaker USD and stronger ZAR decouple as the USD appreciated, with the ZAR holding its own and even managing to make headway and retest towards a key level of R17.70/USD. This defiant run stronger by the ZAR does start to raise questions about its short-term prospects, as it seems to be entering overbought territory in our opinion.

The SARB did end up keeping interest rates flat in SA last week following a softer than expected inflation print of 5.4% YoY; however, the Governor noted there are persistent inflationary pressures that still need to be kept under wraps. There were flashes of hope as GDP growth forecasts have been revised ever so slightly higher, presumably due to the market being hopeful that we have now summited the crest of rising inflation and that we will enjoy a stroll back down to ‘reasonable’ levels of inflation and interest rates alike.

What others say

MoneywebUS economy: Soft landing or not?

“The June US consumer price index (CPI) report showed a notable deceleration in annual inflation, which now stands at 3.0%. Coupled with the resilient labour market, this development has led to growing speculation of a soft landing for the US economy. The belief in this “Goldilocks” scenario has the potential to further boost markets in the near future and is, therefore, something that needs careful consideration.”

SCMPOvercapacity in China’s EV battery industry to reach four times demand by 2025, putting small players at risk

“The oversupply issue is detrimental to the industry because a large number of companies will have to close down without enough orders to support their operations,” said Gao Shen, an independent analyst in Shanghai. “Big companies are growing bigger, but the underachievers will eventually be kicked out of the market.”

Daily MaverickJohannesburg explosion represents our national crisis and the imperative for change

“While the explosion made international news, it was also one more incident in a gradual collapse that has been years in the making, and progressing almost daily. For the six years to the end of 2021, I worked in the Johannesburg CBD. Going there every day is an extreme sport.”

What we think

Last week we said that “Inflationary pressures are up in the short term, mostly due to our exchange rate skyrocketing and increasing the cost of goods. However, expectations are for inflation to have eased significantly on a yearly basis. Our CPI numbers will surely guide the SARB’s decision on Thursday as economists are almost split down the middle”.

The precious metal market has also kept the momentum going for the ZAR as prices have been creeping upwards over the past month. As mentioned, we do think the ZAR may be getting ahead of itself at these levels as most driving factors are outside of our control.

The big event this week will be the Fed interest rate announcement out of the US, with expectations being for a 0.25% increase to 5.5%. Again, besides the nominal increase, the tone of Powell’s speech will direct global markets for the next month. US GDP on Thursday is expected to have increased to 2% and will also coincide with the European Central Bank’s interest rate decision which will most likely mirror the US Fed’s own 0.25% hike.

Our range for the week: R17.55/USD – R17.95/USD.

Have a great week ahead.