August 28, 2023

Currency News

MyCURRENCY News | Week 35 2023

MyCURRENCY News | Week 35 2023

What we know

Just the breath of fresh air that South African importers needed in these times of massive global economic uncertainty. The rand made some solid gains against the dollar this week, gaining just over 2% on the week.  That, however, does not tell the full story, as high volatility saw a wide trading range between Monday’s high at R19.07/USD and Wednesday’s low of R18.42/USD.  Even then the swings were not over as we whiplashed back up to R18.88/USD before recovering some of this during Friday’s trading to close at R18.60/USD levels.

It was not clear what the drivers were on the week:  we watched the dollar index pushing firmly stronger, while still weakening out against the rand (which also gained against the GBP and EUR) suggesting these were rand-driven gains, as opposed to the rand taking its direction from economic announcements out of the US as has tended to be the case of late.

The most significant data point from the week, was July’s inflation print which, at 4.7% was the lowest figure we’ve seen in 2 years and now comfortably within the target range of 3% – 6%.  The market’s reading of this number could be interpreted one of two ways:  a focus on the fact that this may well put paid to further rate hikes by MPC, meaning a weaker Rand as relative yields will potentially become less attractive going forward; or believing that inflation may now be under control and the pressure on local consumers and businesses will ease having passed the peak in our rate cycle. 

There was much focus on the big show in town, with the BRICS (now BRICSSAAEEUAEI) summit held in Johannesburg taking the limelight. With new additions to the trading bloc – Saudi Arabia, Argentina, Egypt, Ethiopia, the UAE and Iran – and a plan to dislodge the global power status quo, we may see an even further increase in the divide between the developed westernised trading blocs, and the Global South. 

While there are obvious positives for all parties in strengthening further trade ties by bringing new partners to the BRICS trading bloc, there is a delicate balancing act at play between the economic and political ramifications.  It is easy to see last week’s announcement as a political power-play and it is surely no coincidence that these moves come against the backdrop of a relatively weak USA, war in Europe, economic uncertainty in China and general displeasure with existing Western power structures, including calls for de-dollarisation. 

The key is to hope that our government is aware and capable of playing this balancing act and not biting the most important hands that feed it, lest we find ourselves pushed towards the pariah status currently granted to some of our partners in this bloc. 

Finally, later Friday saw Jerome Powell’s address at Jackson Hole.  Once again, for what feels like the hundredth time this year, we heard that “(the Fed is) prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective…..Getting inflation sustainably back down to 2 percent is expected to require a period of below-trend economic growth as well as some softening in labor market conditions…..At upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks. Based on this assessment, we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data.”

Although the USD did threaten to strengthen further, it appears as though markets quickly realised there was very little, if anything, new in the prepared comments. 

What others say

Daily MaverickBRICS expansion sees Argentina, Saudi Arabia, Iran, Egypt, Ethiopia and UAE welcomed into the network

“BRICS leaders expressed their satisfaction with the expansion with Russian president Vladimir Putin saying that the expansion process will be seamless. 

Da Silva mentioned the benefits that come with the expansion. He said expansion would not diffuse the influence of BRICS but would increase its power to adopt creative solutions for global problems. He particularly welcomed Brazil’s neighbour Argentina.”

BloombergHow to build a giant power station without spending a cent

“South Africa was for many years a laggard on renewable generation. It still gets about 84% of its electricity from coal, by some margin the highest level among major economies. A thicket of red tape has until recently protected Eskom, requiring that all solar panels be made locally (a near-impossible task given the state of the manufacturing sector)”

“The country’s electricity minister is planning to strike a major deal with China during the BRICS summit in Johannesburg this week to ensure a better supply of solar equipment, Bloomberg News reported recently.”

ReutersOil inches up after China moves to support flagging economy

“Oil prices ticked higher on Monday after China took steps to support its flagging economy, though investors remained worried about the pace of growth as well as further U.S. interest rate hikes that could dampen fuel demand.”

What we think

Last week we said, “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 was good to see the Rand behave as we expected last week, notwithstanding the usual ups and downs along the way.  We continue to feel sentiment has improved somewhat and that further gains could be on the cards.  

It does feel as though the USD performance will be the main external driver this week, given the pick-up in economic releases, including GDP, Personal Income and Spending and employment figures, culminating in Non Farm Payrolls on Friday. 

Our range for the week: R18.45/USD – R18.85/USD.

Have a great week ahead.