October 09, 2023
MyCURRENCY News | Week 41 2023
What we know
Having started last week fairly neutral in our outlook, the extent of the Rand’s weakness certainly caught us by surprise.
Having opened around the R18.87/USD level, we closed last Monday at R19.21/USD before touching the high of the week at R19.64/USD on Thursday and Friday. While the exceptionally strong Non Farm Payroll DATA on Friday added to the volatility, the Rand did fortunately manage to recoup some of its losses to close out the trading week at R19.28/USD.
Although the first half of the week followed the usual trend of the Rand depreciating in response to a strengthening USD Index, there was a significant departure from this on Thursday and Friday: the USD index pulled back, while the Rand continued to come under pressure. The obvious conclusion to draw from this is that Rand-specific weakness was apparent. We leave it to our readers to choose which negative fundamental factor(s) – of which there are many to choose – drove this negative sentiment.
Markets were, as always, focused on the Non Farm employment data that was released on Friday, and while the forecast change in employment was set at 171,000, the actual figure was nearly double that at 336,000 – there seems to be some debate with regards to whether such a bullish figure will cause the Fed to hike rates by 0.25% again next month. It’s an indication of this uncertainty that the USD immediately gained 0.60% when the data was released, only to turn around and lose 1% over the following 3 hours.
With geopolitical tensions having risen this weekend following events In Israel, market volatility may also be heightened as the week develops. During such times, much of global investor focus turns to risk aversion and how current events impact the price of safer assets such as the USD and gold, as well as oil prices.
From an economic data point of view, apart from some second-tier UK releases, all eyes will be on US and Chinese inflation data and the release of the minutes from last month’s FOMC meeting. Yet more strong data out of the US would unfortunately increase the likelihood of another hike next month and potentially send the Rand weaker. Conversely, softer inflation out China would have the same effect, given the impact a slowing Chinese economy could have on South Africa’s exports.
What others say
Daily Maverick – Crime, corruption, power crisis and logistical deficits mean deep trouble for SA’s mining sector
“Tipping over the edge will affect not only the South African, but the global economy, given the country’s resources riches. And SA’s metals and minerals are crucial to addressing climate change.”
Bloomberg – Attack on Israel is calculated and ruthless — and that’s Hamas
“The biggest surprise in Hamas’s massive attack on Israel is that it was a surprise. The operation was of unprecedented scale, involving thousands of personnel and pieces of equipment, from hang gliders to bulldozers and rockets. Such an effort demands weeks if not months of preparation, and all of it took place under the nose of an Israeli intelligence service that has a deserved reputation as one of the most effective in the world.”
Zero Hedge – Harder than Gold, faster than Fiat
“Hardness is the most important characteristic of a good money. All other monetary characteristics are meaningless if the money is easy for someone to produce. That’s why the history of money is the history of the hardest asset winning and why gold has always reigned supreme.”
Reuters – South Africa’s first virtual renewable electricity transfer model to go live next year
“South Africa’s first virtual electricity transfer model is likely to go live by end of next year, a top government official said on Friday, a move that could rapidly ramp up renewable power consumption and reduce the burden on ailing state utility Eskom.”
What we think
Last week we wrote that “(v)olatility will remain if market sentiment towards global risk, US growth, and the Fed’s rate outlook continues to swing. However, our view is that while the timing of the “rates higher for longer” scenario may be uncertain, the rampant USD will revert into a broad 101 – 106 trading range in the coming months.”
Despite a very brief pull-back into the above range for the USD index, SA specific risk made last week’s Rand price action somewhat depressing, with a loss of 2.2% on the week. While today’s USD holiday may make for a quieter and less volatile session, the outlook for the week as a whole feels somewhat more precarious for the Rand, given the data releases out of the US and China and let’s be blunt, the frankly dire state of the World and the geo-political situation that seems to deteriorate on a daily basis. Tough times, weak leaders, division wherever and at whatever level you look… and that’s before turning inwards to consider the challenges facing the country as a whole, with regards to which Thursday’s Business Confidence release will be closely watched.
Our range for the week: R19.25/USD – R19.65/USD.
Have a great week ahead.