September 11, 2023

Currency News

MyCURRENCY News | Week 37 2023

MyCURRENCY News | Week 37 2023

What we know

There are some weeks where there really isn’t too much to write about, in the face of price action that doesn’t make too much sense.  Last week was such a week, where we saw the Rand weaken fairly significantly to as high as R19.33 vs the USD, having started the week at R18.79/USD. 

The tendency in such scenarios is to try and find a reason for the move and, while there were a few possible factors our desk was able to put forward, general consensus was that this was one of those moves where the Rand weakness was overdone in the short-term and that a recovery should be anticipated.  

There were several global factors that could have justified a somewhat weaker Rand:

  • Slightly better than expected Non Farm Payroll release out of the US
  • The USD strengthening throughout the week to its highest levels since March
  • Continuing concerns regarding the Chinese economy
  • General weakness among emerging market currencies

However, for us, the most likely cause of weakness was in fact the Labour Day holiday in the US last Monday.  When US banks are closed, activity in global currency markets tends to decline, meaning that trading liquidity is reduced.  With low volumes and large orders in one direction or the other, the moves that we see can often be exaggerated. 

Towards the end of the week we did see our view playing out, as the Rand slowly started to recoup some of its losses, recovering to R19.02/USD at one point on Friday afternoon.  That has continued this morning as we currently trade at R18.90/USD as of the time of writing. 

This week sees a fair bit of data out of the US, EU and UK, perhaps the most significant being US inflation figures on Wednesday.  With markets firmly focused on next week’s FED rate decision, any significant surprise here would see volatility spike up.   We also have the MPC make their announcement regarding SA’s interest rate next week and given our most recent inflation print we feel there is little to no chance of a domestic rate hike. 

What others say

Daily MaverickThe big eight funders of South Africa’s major political parties

“Daily Maverick’s analysis of the nine sets of funding disclosures made to date shows that just eight individuals are filling the coffers of local parties.”

Visual CapitalistWhat electricity sources power the world?

“In 2022, 29,165.2 terawatt hours (TWh) of electricity was generated around the world, an increase of 2.3% from the previous year. In this visualization, we look at data from the latest Statistical Review of World Energy, and ask what powered the world in 2022.”

BloombergSouth African inflation expectations drop for the first time in two years

“Average inflation expectations for this year fell to 6.1% in the third quarter from 6.5% previously, according to a survey released on Monday by the Stellenbosch-based Bureau for Economic Research. The rate of price growth for 2024 is now seen declining to 5.5% from 5.9% and to 5.3% from 5.6% in 2025, according to participants in the poll of analysts, business people, labor unions and households.”

Zero Hedge – ‘Derailing Goldilocks’ – Goldman questions the ‘Soft Landing’ narrative

“The smell of stagflation – not goldilocks – was everywhere with ‘inflation expectations’ too hot… …and growth expectations (‘hard’ data) too cold… As Goldman notes, rallying rates and commodities are derailing the goldilocks soft landing scenario.”

What we think

Last week we wrote that “…the rand is at somewhat of a crossroads, sitting unnervingly in a key area that serves as a springboard to much more dizzying levels, should we break above the psychologically and technically key level of R19.00/USD, then R19.30/USD may well be on the cards. The other side of the coin is that if the USDZAR ends up rejecting the R19.00/USD level, it could open up the currency to momentary respite.”

The above view already seems to be turning out to be true in both directions:  first, Monday’s close above R19.00/USD did see a fairly quick move to R19.30/USD, where we topped out and started to reverse at R19.33/USD, whereas we’re hoping that the current price action is indeed indicative of the R19.00/USD level having been rejected.  While we now wait to see what the week’s economic data brings, we’re hopeful of continued gains towards the mid R18’s.

Our range for the week: R18.60/USD – R19.00/USD. 

Have a great week ahead.