September 18, 2023
MyCURRENCY News | Week 38 2023
What we know
Last week was a prime example of when the rand lacks direction, it truly does show, and in the face of little economic announcements coming out of South Africa, we saw the rand open at R19.04/USD to the greenback, strengthen back to the previous area that provided some volatility around the R18.80/USD levels, and by late Thursday we had already ended the day trading above the R19/USD handle again.
Emerging market currencies generally performed well against the USD, during a week where we observed the dollar index (DXY) gaining ground, albeit in a very cautious manner. Speaking of the emerging markets performance, the South African Rand was for once amongst the top performing emerging market currencies – in a week that saw the basket of EM currencies outperform the DXY by around +-1.25%.
This may have partially been due to some positive news coming out of China as we saw industrial production and retail sales rise – speaking to an increased demand for emerging market inputs, though it certainly did not come without some stimulus from the Chinese government. China still faces an uphill battle with regards to their property sector – the effect of which may be felt for along time in their economic data.
Although, with that being said, it certainly is a breath of fresh air to see emerging markets making somewhat of a short-term recovery. In western markets, we noted inflation figures coming out of the US being higher than expected, although it served as more of a non-event as longer-term inflationary expectations are forecasted to decline, and it is beginning to look like the US economy may have its finger on the dim switch with respect to inflation going forward.
The ECB’s rate decision provided an unexpected 0.25% rate hike, although as it is with these things – forward guidance suggests this is the last of the rate hiking cycle and we still saw the euro weakening against the ZAR and USD.
What others say
Visual Capitalist – Charted: Six red flags pointing to China’s economy slowing down
“Growth seems to have slowed to a crawl, down to 0.8% (quarter-to-quarter) in the second quarter of 2023 driven by weakness in the Tertiary Sector, which includes retail spending and the troubled real estate sector”
Daily Maverick – SA agricultural exports remained robust in second quarter of the year
“From a regional perspective, the African continent remained the largest market for South Africa’s agricultural exports, accounting for 36% of the exports in the second quarter of 2023. Asia and the Middle East were the second-largest region with a 30% share”
Reuters – EU may become as hooked on China batteries as it was on Russian energy
“Worried by China’s growing global assertiveness and economic weight, the leaders will discuss the European Commission’s proposals to reduce the risk of Europe being too dependent on China and the need diversify towards Africa and Latin America.”
What we think
Last week we said, “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.”
With the market moving below the R19/USD level on Friday and closing the week at R18.95/USD, it is certainly speaking toward the hypothesis that we may see the USDZAR move into the mid R18s, but not without help from the upcoming economic releases.
In the company of the FED rate decision on Wednesday, and the MPC rate decision on Thursday, we can reasonably expect that markets may consolidate around the higher R18’s until these releases are fully furnished, and it’s important to note that any other-than-expected figures may rock the market in either direction. The consensus is pointing towards both decisions being held constant, but we are potentially in for a volatile week.
Our range for the week: R18.50/USD – R19.00/USD.
Have a great week ahead.