November 28, 2023

Currency News

MyCURRENCY News | Week 48 2023

MyCURRENCY News | Week 48 2023

What we know

A classic week as the Rand suffered from a bad case of whiplash. The markets opened last week at R18.28/USD, immediately began trading higher and peaked at a high of R18.95/USD. We witnessed the ZAR lose all its gains from the previous week with a total 3.65% loss against the USD.  

The Dollar index remained in a tight range last week, the only outlier being Tuesday and Wednesday as the DXY gained 1.00% following the hawkish Fed FOMC minutes on Tuesday. The Fed noted that inflation was still well above its targeted levels, and it remains determined to rectify this is in due course, be it via further hikes or, at the very least, a delay in implementing in cuts.  

We can attribute most market movements this week to prevailing ZAR weakness on the backend of inflation figures and our interest rate decision.  On Wednesday, South African inflation year-on-year came in at 5.9% compared to the forecast 5.4%, while month-on-month inflation printed at 0.9% compared to a forecast of 0.4%.  On Thursday local interest rates remained unchanged at 8.25%.  We have for some time felt that continually increasing interest rates will not be effective in keeping inflation in check, especially due to the impact of imported inflation and rising fuel and energy costs.  Our view is that continuing to raise rates would result in the worst of both worlds for South Africa: stifling the consumer and the economy even further, while being unable to directly bring inflation lower.  

Unfortunately, adding to the negative sentiment is that loadshedding is back with a vengeance (post the feel-good factor of being able to watch the Springboks’ victory uninterrupted) and we can only be grateful that summer is here and there is more natural light to enjoy.  

What others say

Visual CapitalistWill the U.S. get hit with a recession in 2024?

“Given the resilience of the U.S. economy, a growing amount of investors are seeing an increasing likelihood of a soft landing—where the Federal Reserve raises interest rates to combat inflation without triggering a recession.” 

Daily MaverickSA Post Office set to relinquish social grants paymaster role.

“The SA Post Office has been under business rescue since July, a process that is an attempt to rehabilitate financially distressed companies by restructuring their affairs. The objective is to enable the company to continue operating while being restructured, saving some jobs in the process.” 

IB TimesAsian Markets ease as US inflation comes into view.

“The retreat in equities comes after a recent run-up across world markets fuelled by bets the US central bank has finished lifting interest rates as inflation comes down and the jobs market comes off the boil.”  

What we think

Last week we said… “the rand has taken its foot off the pedal, and it seems that rush lower could not be substantiated… and now seems to be trading in-between support and resistance levels. We would therefore hope for muted trading until a trading channel is established again, but we can’t shake the feeling that the ZAR still has a good amount of bite left in it. It’s just which way we will ‘buck’ that remains to be seen.”  

And so, it turned out that the ZAR certainly had a good amount of bite left in it – one can never trust it to stay quiet for long – and unfortunately, the Fed minutes triggered the move weaker.  Thereafter, in the face of our inflation figures and increased loadshedding, sentiment continued to slide further as the week progressed.   Now that we have surpassed previous swing highs at R18.80/USD and remain above the R18.70/USD support level, the possibility remains of drifting towards the R19.00/USD level, and even trade up to the next level of resistance around the R19.20/USD area.  Conversely, we would need to move back at least below R18.70/USD to make another attempt at recovering to R18.40/USD. 

In terms of news coming out, we have a quiet week with US preliminary GDP figures coming out on Wednesday and Fed chair Jerome Powell speaking on Friday. Out of South Africa, the most notable release will be the balance of trade on Thursday.  In other words, the fate of the USD is likely to be the main driver in the days ahead.  

As always, enjoy the start of the festive season, and happy trading!  

Our range for the week: R18.40/USD – R19.00/USD. 

Have a great week ahead.