November 13, 2023
MyCURRENCY News | Week 46 2023
What we know
Despite being quiet in terms of news flow, it was an interesting week in the currency markets as we saw the rand losing a big portion of its gains from the previous week. The USDZAR opened the week in the lower 18’s at R18.26/USD and we observed a quick bleed as markets traded from the Monday low of R18.16/USD to the Friday high of R18.80/USD, after 5 consecutive days of rand weakness. By the end of the week, the Rand had lost nearly all its gains from the previous week as markets needed to settle somewhat after the aggressive gains seen since 26 October. As a reminder, we had moved all the way from R19.27/USD to R18.25/USD, the kind of move which understandably would have left us vulnerable to a pull-back. At the same time, accompanying this move was the Dollar Index recovering slightly off its weakest levels since 20 September.
In a week with few data releases and news announcements, markets were mostly focused on Jerome Powell as he took what could be interpreted as a hawkish stance during panel discussions on Thursday. While the FED believes they have been successful in their strategy to calm inflation to manageable levels, it would go without saying that inflationary surprises are not completely off the table at this point, and neither is a final rate hike for the year. Powell expressed that the FED is geared to tighten monetary policy, should it be deemed necessary.
Looking further east, China released deflationary figures with -0.2% inflation for October. It would be wise to take heed of this in South Africa, a slump by one of the worlds largest economies cannot be a good omen for our economic wellbeing looking forward, as China’s demand for our raw materials contributes significantly to our performance.
The Reserve Bank of Australia also jumped on the monetary tightening bus and hiked rates by 25 basis points, indicating that interest rates are the weapon of choice in their battle against inflation.
What others say
Bloomberg – Everything Biden and Xi need from their summit—starting with each other
“The rivalry between the US and China is here to stay. There are too many grievances on both sides and intractable areas of disagreement between them, from the future of Taiwan to the basic rules of fair economic competition, for that to change.”
Moneyweb – Western Cape wants to pool municipal buying power
“The Western Cape provincial government is considering establishing a company to buy electricity from independent power producers (IPPs) on behalf of participating municipalities – hoping to leverage their joint buying power to negotiate lower tariffs.”
Reuters – Fed’s Powell, others, not ready to call policy peak
“Traders now see about a one-in-four chance of a further rate hike by January, up from about one-in-six earlier, and expect Fed rate cuts to wait until June. Longer-term bond yields also rose, helped also by a weaker-than-expected 30-year bond auction.”
What we think
Last week we said… “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.”
As we head into this week, we may hold similar sentiment as the dollar has recovered a large portion of its losses (around 50%), and there are some high volatility news announcements on the horizon. With Inflationary figures out the US due on Tuesday, and UK on Wednesday, as well as unemployment claims out the US set to be announced on Thursday, any shocks here should see volatility pick up substantially.
Our range for the week: R18.50/USD – R18.90/USD.
Have a great week ahead.