September 27, 2022
MyCURRENCY News | Week 39 2022
What we know
There is a paradox where the question posed is; what would happen if an unstoppable force were to meet an immovable object? Fortunately for us, we don’t need to ponder these theoretical questions as it’s quite clear that nothing can stand up to the USD as it continues its rampage. The USD has broken through the key technical and psychologically level of R18.00/USD. This happened early this morning during Asian trading hours with thin liquidity. There was a short-lived pullback this morning as the SA market took over, but it seems that the Dollar is set to remain king for now at least as it has found its way back above R18.00/USD as well as pushing the GBP to as low as $1.04/GBP. We wait with bated breath to see if the EUR and GBP both trade below parity against the USD.
With the US raising interest rates by 0.75% last week and South Africa following suit, one would have hoped this would have kept the ZAR steady and prevented any further depreciation. Unfortunately, global markets seem to have scant regard for emerging market nations and their monetary policy changes during tenuous times like these. There was a brief moment on Thursday last week, prior to our MPC interest rate decision which saw the ZAR push down to as low as R17.44/USD and we are now 60c higher! For those with a bond or any type of credit, it would be concerning to note that 2 of the 5 committee members voted for a 100bps hike. It certainly reinforces the MPC’s hawkish tone going forward.
There is at least the relief of lower oil prices for South Africans in amongst the discomfort we are currently experiencing. Oil has broken well below the $90/barrel level that has provided some support recently. Sadly, this does not help Eskom much as they’re struggling to source diesel for the turbines saving us from even worse than stage 6 levels of load shedding.
What others say
Visual Capitalist – What is the cost of Europe’s energy crisis?
“As European gas prices soar eight times their 10-year average, countries are introducing policies to curb the impact of rising prices on households and businesses. These include everything from the cost of living subsidies to wholesale price regulation. Overall, funding for such initiatives has reached $276 billion as of August.”
Reuters – Pound plunge the latest ill omen as market stress rises
“Sterling slumped to a record low on Monday, and a renewed selloff in British gilts pushed euro zone yields higher as the fall out from last week’s fiscal statement in Britain roiled markets for a second session.”
Daily Maverick – Shortage of diesel to power gas turbines means rolling blackouts continue
“On the 75th day of power cuts so far this year, Eskom announced that Stage 3 rolling blackouts would continue until Thursday, 29 September, with Stage 4 being implemented during evening peaks between 4pm and midnight.”
What we think
Last week we said “The USDZAR goes into the September FOMC meeting on a two year high and the dollar seems to have found a natural bid, suggesting it may still be too soon to call the top of the USD appreciation phase. With the Rand on its knees, anything short of another bold move by the SARB will leave the ZAR vulnerable.”
With the Rand heading into uncharted territory, from a technical point of view there are fewer resistance levels in play which are much less likely to hold if tested by the robust USD. The last time we reached these levels was when we were on our way up to R19.34/USD in April 2020.
There is a slew of US data this week along with a number of Fed members speaking which will definitely give colour around future guidance from the Fed. Domestically, we have our PPI out on Thursday and then followed by our balance of trade on Friday. Our balance of trade is expected to come lower than last quarter on the back of poor exports and lower commodity prices and so it seems the ZAR may stay under pressure for the remainder of the week with volatility expected to be a key player.
Our range for the week: R17.85/USD – R18.30/USD.
Have a great week ahead.