August 21, 2023
MyCURRENCY News | Week 34 2023
What we know
It may feel like clutching at straws; however, we were happy to see the relative stability of the Rand last week, following the wretched start to August. In the first two weeks of the month up until the start of last week, we had given up 6.5% against the USD to find ourselves trading once again with a R19/USD handle. As such, seeing consecutive days of Rand gains to end the week was very welcome, with a move back into the R18’s now firmly on the cards.
It’s been a relentless year in terms of both local and global news-flow with the surprise results out of Argentina’s primary elections the latest event to put pressure on emerging market currencies. The strong performance of Javier Milei has led to concerns about the country’s political and economic outlook, to which the central bank responded by devaluing the Peso by 18% to 350 vs the USD and raising interest rates by 21% to 118%. Inflation is running at 115%. Perhaps the best way to illustrate the problems is to point out that the mighty Rand has outperformed the Peso by 126% over the past year.
In the face of relatively few data releases out of the US – the FOMC minutes released last week provided little other than confirmation of the Fed’s continuing wait-and-see approach – the focus has been more on consistently poor data coming out of China and the implications this may have on global and, in particular, emerging economies.
Speaking of emerging economies, this week will be all about the long-awaited BRICS summit taking place in Johannesburg from tomorrow. While the absence of Putin has perhaps removed the prospect of a proper circus and allowed Cyril to sleep more easily the past few weeks, the potential for some spectacular political posturing remains extremely high. Whether or not the attendees choose inflammatory rhetoric or a more pragmatic approach, the divide between the Developed West and Global South and attempts to restructure the existing “World Order” will be the underlying theme in the days ahead.
While there are slightly more releases out of the US this week, it is mainly second tier data, meaning SA’s local inflation print on Wednesday will be the key data point.
What others say
Bloomberg – Fed can’t celebrate yet as investors expect rates, inflation to remain elevated
“Powell and co. can’t be sure they’ve raised interest rates high enough to tame prices. They’re even less clear about how long policy will have to stay tight –- increasingly the dominant question for financial markets.”
“Global government bond yields have already surged to the highest in more than a decade – with rates on benchmark 10-year debt reaching as high as 4.33% this month in the US and 4.75% in the UK – on expectations that the Jackson Hole crew aren’t done hiking yet.”
Reuters – Oil rises on lower OPEC+ exports in August
“Oil prices rose on Monday as global supply is tightening with lower exports from Saudi Arabia and Russia, offsetting nagging concerns about global demand growth amid high interest rates.”
“Meanwhile, China, the world’s top crude importer, is drawing on record inventories amassed earlier this year as refiners scale back purchases after supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, known as OPEC+, drove global prices above $80 a barrel.
In July, Saudi Arabia’s shipments to China fell 31% from June while Russia, with its discounted crude, remained the Asian giant’s largest supplier, Chinese customs data showed.”
IB Times – China cuts key interest rate to support economy
“China’s central bank on Monday cut a key interest rate in an attempt to counter the post-Covid growth slowdown in the world’s second-largest economy.
Activity has been dragged down recently by uncertainty in the labour market and global economic sluggishness, weakening demand for Chinese goods.”
Bloomberg – The emerging market bloc that wants to shake up the world order
“A market capitalization-weighted measure of the five BRICS nations’ stocks has risen 81% since 2009, compared with a 379% rally in the S&P 500 Index. Factor in the weakness of their currencies during this time and their dollar returns look much worse.”
What we think
Last week we wrote that “…despite our fundamentals not having really improved, they are firmly in the back seat following the contagion out of Argentina…We don’t expect much from the ZAR and would rather wrap ourselves in cotton wool and hope we come out the other side in one piece.”
With data releases light this week and the Rand still feeling in a somewhat consolidatory pattern, there is no obviously clear direction for trade. Having said that, the USD rally may also be due a pause, having recovered almost 4% since mid-July and as such we would favour, if anything, a move back below 19 for the Rand. While there’ll be plenty of headlines out of BRICs, it would take some really reckless and/or stupid comments, for anything market moving to emerge.
Our range for the week: R18.70/USD – R19.20/USD.
Have a great week ahead.