August 26, 2024
MyCURRENCY News | Week 35 2024
What we know
Let’s all enjoy the current robustness that the Rand continues to exhibit. Having opened the week at 17.67 to the USD, we drifted weaker all the way into Thursday evening, touching as high as 18.05. Nevertheless, a rather drastic Friday afternoon session saw the Rand strengthen – or, more accurately, the USD weaken – all the way back down to Monday morning’s level of 17.67.
While most of the week was spent watching the circus that is the build-up to the US elections, the trigger for the fireworks was the Jackson Hole Symposium where the Federal Reserve solidified the September interest rate cut, stating that the time to cut rates has come. This sent the USD index (DXY) back to its weakest levels of the year at 100.56.
Looking at it very simplistically, the “will they, won’t they cut” (and if they will, then when) guessing game that the market has had to play this year can be broadly divided into two moves. First, the unwind of the overly dovish signalling from the Fed in December, which saw the DXY move stronger from 100.70 to 106.50 from January to late April, and second, the subsequent drift back down to current levels of 100.74 as the inevitably of a cut has become a near-term reality.
While not a market moving data point, Friday’s release of MoM new home sales at 10.6% (the highest increase in 2 years) added weight to the sense that mortgage rates have and will continue to ease moving forward.
Given that local sentiment remains broadly positive, in the absence of anything to rock the domestic boat, the Rand should continue to remain resilient, thereby benefitting from any USD weakness. Local inflation figures were released last week, which came in at 4.6% YoY, less than the 5.00% forecast. Inflation is now at the mid-point of the SARB’s target range where rate cuts could come into play locally, and we believe that South Africa will tailgate the US in its interest rate decision. As such, we do anticipate that the MPC will cut local rates next month, possibly limiting further ZAR gains in the short term. Nevertheless, we do still continue with the cliché that the line of least resistance for the Rand remains a slow grind stronger.
What others say
Reuters – Investors rush to money market funds before Fed rate cut, BofA says
“Investors poured $37 billion into cash-like money market funds (MMFs) in the week to Wednesday, Bank of America said on Friday, as they braced for the U.S. Federal Reserve to cut interest rates in September. It put MMFs on track for their biggest three-week cumulative inflow since January at $145 billion, BofA said, citing figures from financial data provider EPFR.”
Moneyweb – SA seen dodging recession on consumer-led rebound
“A softer inflation reading would support consumers by boosting spending power and encouraging the central bank to start lowering South Africa’s painfully high interest rates next month.”
CNBC – Oil set to end week lower on demand concerns, easing supply woes
“Oil prices were steady in early Asian trading on Friday, but were poised to end the week lower as downward revisions to U.S. employment data raised demand concerns and ceasefire talks in Gaza eased worries about supply disruptions.”
What we think
Last week we said that,“Other than the Jackson Hole Symposium, it is a quiet week in terms of data releases. If the Rand can maintain its push stronger, there is very little in terms of scheduled global data to disrupt this.”
The same can be said for the week ahead, with very little data scheduled to be released until Thursday afternoon, albeit that it will be a significant release in the form of US GDP data.
The question then arises how the market will respond to a result that surprises either to the upside or downside. Our sense is that as long as the quantum of the surprise is not too great, the market may very well see a knee-jerk move in the USD followed by an instant retracement. That is to say, a strong GDP release is unlikely to be viewed as threatening a September rate cut, whereas one feels it would take quite a miss for the market to fully move to pricing in a 0.50% cut, as the Fed’s first move.
Given how global markets caught a (very brief) cold when Japan sneezed a couple weeks ago, also keep an eye out for Japanese unemployment, industrial production and retail sales figures on Friday.
Our range for the week: 17.65 – 18.05.
Have a great week ahead.