October 03, 2022
MyCURRENCY News | Week 40 2022
What we know
Currency markets had another week of wide ranges, but ultimately closed once again not far from where they started. Both EM and DM currencies seemed to throw their hands up and go with whatever suited their narrative. The USDZAR traded in a 40-cent range, finishing exactly where it began on Monday at 18.10 to the US Dollar.
It’s hard to ignore the global synchronisation happening when it comes to central bank tightening monetary policies. While such lockstep moves do not come as a surprise given multi-decade high inflation in the world’s biggest economies, the ramifications in the financial markets have been on full display.
Last week, Japan’s Ministry of Finance intervened directly to avert the yen from falling beyond 145 per dollar; on Wednesday brought the Bank of England’s intervention in the gilts market, which also had the effect of arresting the pound’s descent toward parity; and on Thursday, the People’s Bank of China responded to the yuan’s weakest dollar exchange rate since 2008 by warning: “Do not bet on one-way appreciation or depreciation of the yuan, as losses will definitely be incurred in the long term.”
In all cases, sharp losses for the home currency were more or less halted. None of the interventions as yet have led to any kind of major reversal: Interventions by three of the four largest economies outside the US in the space of a week show that the dollar’s strength is beginning to cause real stress. But there are at least two sides to any currency trade, and no meaningful limit to the dollar is possible without willing participation by the US.
What others say
Bloomberg – China tightens lending taps, leaving African markets vulnerable
Yields on African dollar debt are at levels last seen during the global financial crisis levels after the Federal Reserve hiked interest rates in September and said it would do whatever it takes to get inflation under control. Average yields on sub-Saharan debt jumped more than 100 basis points in the past week to trade at about 14.3%. That compares with the 50-basis-point increase for the emerging-market average to 8%. With China stepping away, heading to international bond markets may be the only option to get financing — but for some, that’s becoming prohibitively expensive.
Bloomberg – OPEC+ to consider output cut of more than 1 Million barrels
“A larger-than-expected reduction would reflect the scale of the producer group’s concern that the global economy is slowing fast in the face of rapidly tightening monetary policy. A final decision won’t be made until oil ministers meet in OPEC’s Vienna headquarters, the delegates said. A cut of 1 million would be the biggest since the start of the pandemic.”
Financial Times – Europe’s energy plan: is it enough to get through winter?
Analysts now warn that a deep recession is inevitable, with Deutsche Bank predicting real gross domestic product in the euro area will fall by close to 3 per cent in aggregate between the second quarter of this year and the same period in 2023 — a larger peak-to-trough decline than during the euro crisis. In the wake of the electoral victory of a far-right-led alliance in Italy this month, other EU capitals are watching intently for signs that the soaring cost of living might drive popular unrest and push voters towards more extreme parties.
Daily Maverick – ‘The Enemy Within’: How ANC corruption ‘began under Mandela’
“The ANC didn’t take kindly to that, so what the party did was — Mandela, Mbeki and other high-profile leaders — made a decision that Holomisa was out of order, he was bringing the ANC into disrepute, and he shouldn’t be raising issues of corruption — and they decided to discipline him,” said Mkhabela. The ANC expelled Holomisa in 1996 after he testified at the Truth and Reconciliation Commission about the alleged corruption, while the person against whom the allegations were made (Sigcau) remained in the Cabinet under Mandela’s administration, and under former President Thabo Mbeki’s administration.
What we think
Last week, we mentioned “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”
So, markets are all over the place chasing their tails, and if anyone can discern a central theme out of this mess, we would love to hear it. This week, in particular, is a desert on the local data front with only manufacturing and service sector data coming out.
The USD/ZAR price action is showing consolidatory moves at 18.00 emphasising its importance as a key area of confluence. That state of affairs is unlikely to change much, as the next few days will likely be the eye of the hurricane, so we should enjoy the temporary peace and quiet as we await the release of US Nonfarm payrolls on Friday.
Our range for the week: R17.80/USD – R18.15/USD.
Have a great week ahead.