November 06, 2023
MyCURRENCY News | Week 45 2023
What we know
The ZAR is 3% stronger in one week – not the usual positive news we’re used to hearing when talking about the USDZAR exchange rate. We are sitting pretty at R18.24/USD this morning, a whole one rand (5.25%) stronger from the highs on 26th of October. It’s been a wild ride as the ZAR does what it does best, overreacting to news. The USD has lost some ground since the 26th of October with the DXY having given up 2.15%, but the ZAR has appreciated by almost double, 5.25%. This quick swing by the ZAR does leave us with a feeling of anxiousness, like a rubber band has been pulled all the way back and we’re waiting for it to suddenly snap us back to reality.
The major drivers continue to be from offshore and are primarily directly from the US. It started with the US interest rate decision on Wednesday, which held no surprises as interest rates were held constant at 5.5%. The real market moving matter came however during the press conference where Jerome Powell relayed the Fed’s perception that the market was lagging relative to their policy tightening in action. There is still a rate hike priced in for the end of the year, but the perception is that the Fed is happy with current measures as is.
Fortunately, the Fed’s feeling seems to have rung true as the Non Farm Payroll (NFP) and unemployment numbers that came out on Friday mirroring the sentiment. NFP ‘missed’ by a large chunk, with only 150K new jobs being added to the sector compared to the expected 180K jobs. Unemployment also rose by 0.1% to 3.9%. These two news events in conjunction saw the ZAR gain large amounts in a short amount of time.
We did not forget about the MBTS from last week, though it feels like it was overshadowed by offshore news with a seemingly muted impact on the market. We think a combination of the international market giving less airtime to SA’s domestic woes following our downgrade to junk status in 2020 along with sensory overload given the plethora of news events last week are the main reason. Overall, it was not a positive announcement with most attention being paid to our SOE’s shortcomings and how we plan on navigating those troubled waters. To re-iterate the painful truth – the drain on state coffers by SOE’s followed by a ballooning public wage bill are our biggest enemy at hand and there seems to be fewer ways out of this quagmire as time progresses. Our debt to GDP ratio is one of the biggest red flags here and does not point to a healthy relationship.
What others say
Daily Maverick – Treasury adopts a new approach to rein in bloated public servants’ wage bill
“Since 2020, Treasury has attempted to implement a pay freeze in the public sector to stabilise the cost of paying SA’s 1.2 million public servants. But it failed to do so as it faced pushback from public sector trade unions, which embarked on several strikes.”
Bloomberg – South Africa risks losing business investment over Visa ‘chaos’
“A team set up by Cyril Ramaphosa, South Africa’s president, found that between 2014 and 2021 a total of just 25,298 work permit visas — an average of 3,162 per year — were approved in a nation of 60 million people. The shortages have been exacerbated by high levels of emigration by skilled South African workers.”
Visual Capitalist – Charted: U.S. Retail Investor Inflows (2014–2023)
“No-fee investing platforms, along with pandemic-induced boredom from lockdowns, combined with federal assistance checks sent investors scurrying to the markets. By the first quarter of 2020, daily net flows hit $1.28 billion, nearly double the previous high in 2015.”
What we think
Last week we said that, “When it comes to the Medium-Term Budget Speech, there is plenty of room for some adverse market reactions to any more doom-and-gloom pronouncements. Essentially, we will get a better understanding on where government plans to allocate its resources in the next 2-3 years, and what this means for the medium-term outlook for South Africa.”
The rand does feel like it has outdone itself and is trading in a channel well below where it should be given the lack of any positive developments locally. The feeling (as pessimistic as it may sound) is that the ZAR strength (read USD weakness) will be short lived. Momentum will as always depend on offshore sentiment and for how long USD bears will have the upper hand before the USD rebounds stronger, forcing the USDZAR back to the upper R18’s potentially.
Our range for the week: R18.05/USD – R18.40/USD
Have a great week ahead.