December 05, 2022

Currency News

MyCURRENCY News | Week 49 2022

MyCURRENCY News | Week 49 2022

What we know

Last week’s price action on the USDZAR reminded us of the much-dreaded Nenegate in 2015 where our political shenanigans left the international market in no mood to sit around and wait, but rather to swiftly de-risk and sell the ZAR leading to a rather dramatic selloff. So, much of the same this past week with the release of the Phala Phala report, but fortunately on a much smaller scale (for now), and hopefully only hanging over our heads for a much shorter time. It was a sharp move from as low as R16.90/USD on 30 November to R17.93/USD by the following afternoon. Fortunately, the Rand has proven resilient to the upward spike and trundled all the way back to R17.20/USD this morning. We will have to wait and see how Ramaphosa decides to make his next move as he is currently holding his cards close to his chest with things not looking too pretty. 

Looking abroad, the US Fed has their next meeting on the 14th of December where they will release their latest interest rate decision – with current expectations looking forward to a 50bps increase. It is prudent to note that there are no further MPC meetings this year from the SARB and so, if the Fed hikes in line with expectations, we will see the interest rate differential reduced until at least 26 January 2023 when the MPC is scheduled for their next release. On paper this should affect the carry trade by dis-incentivising foreign investors from bringing funds into SA, most notably for bond purchases, and thus weaken the demand for ZAR.

What was interesting last week Friday was the market reaction to the November Non Farm Payroll data release. The number came in significantly higher than anticipated at 263k vs 200k. As one would expect, the USD initially rallied on this, but by the close of business on the US’s side the DXY had given up all gains and was trading at the same level as before. This therefore, leads us to believe that the market has taken into account the end, or at least slowing, of the hiking cycle and is no longer fixating on each and every data print out of the US.

What others say

Daily MaverickPhala Phala report – no good options for President Ramaphosa or our country

“South Africa holds its breath as the ANC and alliance partners try to figure out what on earth to do about the recommendation to impeach President Cyril Ramaphosa. South Africa is now caught up in its third presidential game of musical chairs in 14 years.”

BloombergOPEC+ pauses as Russia sanctions and China Covid rules roil crude markets

“The oil market could look quite different by early 2023, with several potentially historic shifts in supply and demand unfolding in the coming days and weeks… Shanghai had just eased some Covid restrictions, joining other Chinese cities as authorities accelerate a shift toward reopening the economy after thousands of demonstrators took to the streets.”

Visual CapitalistGlobal energy prices, by country in 2022

“For some countries, energy prices hit historic levels in 2022. Gasoline, electricity, and natural gas prices skyrocketed as Russia’s invasion of Ukraine ruptured global energy supply chains. Households and businesses are facing higher energy bills amid extreme price volatility. Uncertainty surrounding the war looms large, and winter heating costs are projected to soar.”

What we think

Last week we said that “We do not see conditions quite 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.”

We have a sprinkling of data out of the US this week and locally our Q3 GDP is to be released tomorrow and our manufacturing and current account on Thursday, 8th December.  We too look forward to seeing how constrained the Eskom network is and how this week’s loadshedding pans out – though it does not look positive.

There is of course only one real big item on the agenda locally, and the spotlight lands squarely on our President. This ties directly in with the ANC NEC with news expected to be coming out today along with any other leaks. We expect a fair amount of political volatility as the story develops, though we are still not convinced how seriously the international market will view this in the resultant trading activity, at least not until the dust has settled.

Our range for the week: R16.95/USD – R17.45/USD.

Have a great week ahead.