August 05, 2024
MyCURRENCY News | Week 32 2024
What we know
The Rand traded in a range-bound manner last week, opening the week at 18.24 to the Dollar and closing the week at 18.25. Once again, the market found some resistance around the 18.50 mark forming a high last week of 18.52 with the weekly low coming in at 18.10.
With such a heavily news-driven week, one can argue that the mixed currency movements across the board is somewhat justified by the mixed data itself.
The FED decided to keep rates fixed at 5.5%, which was the expected outcome, however the market has begun pricing in the inevitable rate cuts and the “higher rates for longer” sentiment is proceeding to lose some steam as the US edges closer towards a less restrictive monetary policy.
The most notable movement last week was because of softer employment figures out of the US with 114K jobs added to the payroll compared to the forecasted 176K – while the US unemployment rate increased from 4.1% to 4.3%. The combination of these data points caused volatility to pick up substantially and the Dollar Index to fall from 104.07 to 103.12 following the release.
Additionally, the Bank of Japan went against the grain and hiked their interest rate from 0.1% to 0.25% while at the same time, the Bank of England cut their interest rate for the first time in 4 years from 5.25% to 5.00%, which resulted in a sell-off in the Pound following the release.
What others say
Reuters – Aftershocks of carry trade at heart of market rout could still have reverberations
“Investors said the aftershocks of a massive carry trade that has reverberated through global financial markets wasn’t done yet, with more unwinding in the days ahead raising the risk of shake-outs to other assets.”
Foreign Policy – Global Market Meltdown Adds to Geopolitical Chaos
“The bloodbath, though irrational, is problematic for a lot of reasons, not least because it is wiping out billions if not trillions of dollars of paper wealth – a sudden and virtual impoverishment that could soon trickle into real things such as consumer sentiment, manufacturing confidence, housing starts, and job creation, the nuts-and-bolts parts of national and global economic prosperity.”
Business Live – Global market turmoil rattles SA stocks and rand
“The JSE all-share index falls more than 2% in intraday trading and rand retreats to its weakest level in almost two months.”
Daily Maverick – Accountability is the new ANC and GNU buzzword, according to ‘Mama Action’
“PAccountability is a cornerstone of the rule of law, so its prominence in the newly announced ANC thinking for the future of SA is most welcome.”
What we think
Last week we said that,“Non-farm payroll figures on Friday will provide further insight into whether the projected rate cut is right on time or may be too optimistic from the FED.”
With NFP figures coming in softer than expected, the Dollar is showing signs of weakness; however, aside from the market already pricing in rate cuts going forward, there are growing concerns around the US economy at present, as well as anxiety surrounding geopolitical uncertainty.
The biggest catalyst here is risk-off sentiment fully rearing its head, with equity markets and commodity markets all being down, while the bond market is looking relatively healthy as investors pile into safer assets.
When there is a shift to risk-off sentiment, the Rand takes more of a knock than other ‘riskier’ currencies as there is a liquid market for the currency and as such it is easier to offload. Most of the “easy” gains have already been made for the Rand due to the improved local sentiment and it will now be signs of improved economic growth, job creation, SOE efficiencies and policy implementation that will drive further Rand-specific gains.
In the face of rising global turmoil, it’s hard to see improved domestic fundamentals being enough to spare the Rand from a subdued short-term performance.
Our range for the week: R18.20 – R18.85.
Have a great week ahead.