January 23, 2023
MyCURRENCY News | Week 4 2023
What we know
As a South African, trying to remain positive in a time when there is seemingly bad news around every corner, the feeling is akin to being a lone aloe in the karoo fighting purely to exist in one of the worlds harshest environments. The persistent torment of load-shedding is now unescapable and something government can no longer dodge and weave when questioned about. South Africans are at a breaking point, and will no longer be pacified by vague explanations and promises of turning things around in the future.
The sad thing is that things will be getting worse before they will get better, and that this is going to be the norm for at least the next two years – perennial load-shedding (let that soak in), with a bare minimum of at least stage 2. Ramaphosa did speak this weekend about the recent Eskom price hike, saying: “It will not be fair to impose the tariff on our people while there is load shedding” – though, it seems disingenuous from the President to ‘appeal’ to the board of Eskom and withhold its tariff increases as an act of good faith.
US Fed members spoke last Friday, with many of them pointing to a further two hikes, and solidifying the view that there may be respite in the near future. This view will be closely linked to the US CPI prints in the coming months. Our local interest rate decisions are closely tied to US rate hikes as we try and keep our bond rates competitive and to ensure any import price inflation is kept in check.
What others say
News24 – Cyril Ramaphosa – Open letter
“Government has signed agreements for 25 projects from bid windows five and six of the renewable energy programme, and these projects will soon be proceeding to construction. Collectively, they represent 2 800 MW of new capacity.
The licensing requirement for embedded generation projects has been removed. Since we first raised the licensing threshold to 100 MW, the pipeline of private sector projects has grown to more than 100 projects with over 9 000 MW of capacity.”
IBTimes – Bipartisan U.S. Lawmakers preparing plan to avert debt-ceiling crisis
“U.S. lawmakers are preparing a plan to defuse a looming crisis over the nation’s debt ceiling by changing it from a fixed dollar amount to a percentage of national economic output.
A 2011 standoff over the debt ceiling lead Standard & Poor’s to cut the U.S.’s credit rating, a historic first. Failure to address the limit this time could roil global markets and trigger an economic downturn.”
Bloomberg – Nigeria’s $11 Billion lawsuit threatens Africa’s biggest economy
“The Nigerian government will urge the UK high court to stop the hedge fund-backed firm Process & Industrial Development Ltd. from collecting a massive arbitration award that was handed down in 2017 following a failed — and allegedly fraudulent — gas deal. That amount equals almost a third of Nigeria’s forex reserves, and its payout would deal a huge blow to Africa’s largest economy, which is still recovering from a pandemic-induced recession.”
Reuters – China reopening spurs record inflows into emerging market funds
“Investors poured a record $12.7 billion into emerging-market debt and equity funds in the week to Wednesday, in response to China’s easing of its COVID-19 restrictions on activity, data on Friday from BofA Global Research showed.”
What we think
Last week we said that “However, until proven wrong, the ZAR does still seem to be on a strengthening course from October last year. The USD had been tremendously overbought and the ZAR left stranded high and dry, so a correction has been on the cards for some time.”
Last week’s trading action was a little more volatile than we would have liked, having bounced almost perfectly off of both the bottom and top brackets of our range, R16.85/USD and R17.30/USD within one trading day. The ZAR seems to have struggled to maintain any momentum as the most recent drives below R17.00/USD have been short-lived, with rebuttals from the USD being swift. This seems to point to a channel forming between R16.90/USD and R17.30/USD.
We have our interest rate decision this Thursday where a 0.5% rate hike is expected. This is followed closely by US GDP growth for the 4th quarter of 2022. Normally, these events have already been priced into the market, so any deviation from the expectation will result in sharp increases in volatility, at least in the short-term. Our range remains mostly unchanged from last week as the USD/ZAR still seems to be range bound and looking for some event-related impetus.
Our range for the week: R16.90/USD – R17.30/USD.
Have a great week ahead.