November 28, 2022

Currency News

MyCURRENCY News | Week 48 2022

MyCURRENCY News | Week 48 2022

What we know

After the relative inactivity on global markets last week owing to the Thanksgiving celebrations in the Northern Hemisphere, markets are back with a proverbial bang, albeit driven by sentiment rather than economic data. The Rand continues to trade in the 17.05 – 17.18 range established after pulling back from last week’s best level of 16.90.  Looking elsewhere, local retailers experienced what appeared to be a muted Black Friday as high inflation and sagging consumer sentiment erode South Africans’ demand. The fickleness of market sentiment also reflects the desperate uncertainty about the impact that the overly aggressive policy tightening will have on economic prospects. 

Last week Thursday, the SARB raised interest rates by 75bps to 7.00%, in line with expectations. The Rand, however, did not react, implying the market had already priced in the increase. The voting pattern of the MPC suggests that the SARB is likely to ease off its rate hikes in early 2023 with growth concerns mounting and as the global monetary policy direction shifts. At the time of writing the Rand is trading at 17.08 USD/ZAR, with offshore news-flow and reduced liquidity behind the early-morning volatility. Notwithstanding the ongoing load-shedding debacle, most commentators are suggesting that the fundamentals underlying rand gains are holding firm… for now. However, risks are mounting.

The week starts with a focus on events in China as local authorities struggle to battle rising daily case numbers and enforce lockdowns. While a disorderly exit from China’s Covid Zero policy could ultimately prove a positive for global demand, getting to that point will be an exceptionally bumpy ride for the world’s financial markets. As it stands currently, events in China are being read negatively for demand trends, where for example Brent crude and industrial metal prices are under pressure. 

What others say

Daily MaverickCommodities sink as Covid’s spread; protests worsen outlook in China

The protests come on the heels of a new set of measures that promised fewer disruptions to containing the disease. But those policies have been immediately tested by China’s worst outbreak since the pandemic began, with officials quickly reverting to lockdowns to control the spread. 

That’s affecting factories, hitting demand for raw materials like metals, and the coal and gas that power operations, as well as the diesel needed to transport goods. The risk is that commuter traffic and airline flights also slow to a crawl, further weighing on oil demand.

Investing.comDollar gains on safe haven flows after China’s COVID protests

These rare protests raised worries about the viability of China’s zero-COVID policy and its impact on the world’s second-largest economy, pushing USD/CNY up 0.3% to 7.1963, at a two-week high.

MoneywebAnother arrest at Eskom’s Camden power station

Eskom says the Bidvest Protea Coin tactical task team, contracted to investigate coal, diesel and fuel oil theft cases, detected the truck as it left the illegal coal yard in Middelburg. The team followed it to the Camden Power Station where it was stopped at the gate.

Business InsiderIndia and China are still snapping up Russian oil — but they are demanding huge bargains

But that’s proving to be difficult business. India and China now account for about two-thirds of all Russian seaborne crude-oil exports, and as major customers, they are demanding massive discounts for their purchases, Bloomberg’s oil strategist Julian Lee wrote on Sunday.

What we think

Last week we highlighted, “The USD index (DXY) settled into the 106 – 108 range, albeit with some overshoot last Tuesday that pushed it as low as 105.3, which in turn sent the Rand to its best levels at 17.10”.

As we outlined in our previous commentaries, we do not see conditions quiet yet being in place for a significantly benign dollar bear trend – even though market participants are desperate to put money to work away from the dollar. Seasonally, the dollar is weak moving into December, but our call this week, is that the dollar upholds its safe-haven status as investors respond to the Covid news and protests stemming from China.

In addition to Fed-speak, the data calendar picks up again this week, with readings on SA’s Balance of Trade, US PCE inflation and Friday’s release of the November jobs report. The more important data releases come on Thursday and Friday, where any uptick in the core PCE price data or strong job numbers could support potentially hawkish rhetoric from Chair Powell and send US yields and the dollar higher again.

Our range for the week: R16.90/USD – R17.20/USD.

Have a great week ahead.