January 30, 2023

Currency News

MyCURRENCY News | Week 5 2023

MyCURRENCY News | Week 5 2023

What we know

Another somewhat dim week for the Rand, and no, that’s not a pun about Eskom. The Rand had been looking like it was going to re-test below R17.00/USD in the build up to the MPC decision on Thursday. However, Governor Kganyago surprised the market with a minor hike of only 0.25% which saw the ZAR drop substantially in a short period of time – with it now finding its footing between R17.15/USD and R17.30/USD. This shift to the upper bound of the channel may create a support level for the USD and prevent any positive ZAR movements for the short-term.

Last week’s guidance from Kganyago saw GDP growth shifted downwards as loadshedding’s continued drag on the economy pulled us down further than originally provisioned.  Elsewhere, US GDP was pleasantly positive on Thursday, beating expectations of 2.6% with 2.9%, which didn’t help the ZAR’s cause following the interest rate decision.

Right now, it does not seem that much more can go wrong in SA (cue foreshadowing), and so we expect market movements for the time being to be based off of international markets. The ZAR should already be heavily discounted and so hopefully the market remains numb to any other negative local news.

What others say

Daily MaverickSA’s upward rates cycle probably nearing its end, say experts

“The interest rate hike of 25 basis points this week, taking the repo rate to 7.25% and the prime interest rate to 10.75%, is the eighth consecutive increase in the current upward rates cycle. It was, however, somewhat lower than widely held expectations of a 50 or even 75 basis points increase.”

BloombergNew year, new hurdles for exports

“Global trade has taken a turn for the worse, with businesses hunkering down for a possible recession and the boost from China’s much-awaited reopening yet to materialize. The data is starting to catch up with the somber sentiment that’s persisted among the world’s manufacturers and exporters in the past few months.”

ReutersOil falls ahead of OPEC+, U.S. Federal Reserve meetings

“Ahead of the Federal Reserve’s policy meeting scheduled on Jan. 31-Feb. 1, the market broadly expects the U.S. central bank to raise interest rates by at least 25 basis points, increasing concerns that the Fed’s extended increases in borrowing costs will choke fuel demand growth in the world’s biggest oil consumer.”

MoneywebOnly three of Eskom’s coal plants are consistently producing over 2 000MW

“Medupi, where performance has steadily improved over the past year, achieved average output of 2 075MW (from 3 600MW), meaning an EAF of 57.7%. Unit 4 remains offline since it was blown to pieces just more than a month after the ‘official’ completion of the entire power station in 2021.”

What we think

Last week we said that “We have our interest rate decision this Thursday where a 0.5% rate hike is expected. This is followed closely by US GDP growth for the 4th quarter of 2022. Normally, these events have already been priced into the market, so any deviation from the expectation will result in sharp increases in volatility, at least in the short-term.”

With our own interest rate decision out of the way, our attention shifts to international news events, of which there are plenty this week. SA has its trade balance out on Tuesday afternoon, with EU inflation on Wednesday afternoon followed by the US Fed rate that evening. Another incremental increase of 0.25% is expected. Thursday sees the EU and UK announce their interest rate decisions, with forecasts for 0.5% increases. The pièce de resistance is the US Non-Farm Payroll on Friday afternoon which will tie together what we expect to be a tumultuous week for the ZAR.

The slew of data out this week will hopefully point to easing interest rate pressure and thus an increase in appetite for riskier assets such as those in SA. As always, of vital importance will be the forward guidance given by the respective governing heads alongside their announcements, as this will allow the market to start looking forward by giving clues about global Central Bank intentions over the coming months. 

Our range for the week: R17.05/USD – R17.60/USD.

Have a great week ahead.