January 29, 2024
MyCURRENCY News | Week 5 2024
What we know
As we get ready to put January behind us, we also suspect that we may be saying goodbye to the relative lack of volatility that the Rand has displayed so far this year.
Having closed 2023 at R18.28 against the USD, only two days into January we had touched as high as R18.84/USD and subsequently spent the rest of the month in a R18.60 – R19.20/USD range, largely in a response to a slightly stronger USD index.
Last week saw local Inflation figures being released on Wednesday afternoon, with month-on-month inflation printing at 0% (forecast at 0.2%) and year-on-year inflation printing at 5.1% (forecast at 5.3%). Even as inflation begins to slow down somewhat, and hopes of rate cuts rise, we do still have some way to go as the MPC has said they want to see inflation at 4.5%. So, for the foreseeable future the interest rate remains at 8.25%.
Of greater concern to us is what lies ahead in the coming months and the many events that could have a significant impact on the Rand. It almost feels as though currency markets are in a bit of limbo, despite all the chaos going on in the world.
Dividing potential catalysts into domestic and international drivers, it’s hard to make a bullish case for the remainder of the year:
- At some point investors will grow weary of the lack of improvement in our fiscal condition and growth prospects, and the ability or willingness of the government to impact these positively. How likely is it that next month’s budget will alleviate these concerns? How likely is it that Lame Duck Ramaphosa will inspire anything but indifference to the usual verbiage in his upcoming State of the Nation address?
- Related, can anyone envisage a particularly positive outcome to the upcoming local elections? A strong ANC performance feels like a losing scenario, as does a poor performance that may force the ruling party into unsavoury coalitions. It’s a bit depressing to think that the best we can hope for, may just be more of the same…
- General instability remains the order of the day around the globe, be it socially, economically, or politically (70 elections worldwide this year is unlikely to improve this). While it’s impossible to have a clear read-through on what the impact on global markets will be, risky assets and developing economies struggle to thrive in such conditions.
- Perhaps the world is always unstable – entropy does propose a tendency to disorder. Perhaps it just feels more unstable “this time” simply because everything is amplified in a world where social media SCREAAAAAAAAMS at everyone all day long. Still, as Gary Larson wrote in 1993, “the chickens are restless”…
- We are currently either in World War 2.5 or the start of World War 3. Hopefully it’s the former and the current wars and conflicts calm down. Unfortunately, as of right now, things still feel as though they’re ramping up. It’s up to Joe “Methuselah” Biden to decide how to respond to Iran’s actions in the Middle East, given the direct targeting of US troops there. One feels a firm hand is needed, although no matter what he decides, he’s going to be vilified by either the Republicans or the far-left of his own Democratic Party.
- Unfortunately, South Africa has seemed intent on aligning itself against the West in most geo-political events of late. First it was Russia and now it’s Iran and its Middle-East proxies. Short-term political manoeuvring and vote-hunting may have its rewards, but again the ANC is putting itself ahead of the long-term interests of the country. At some point the fly is going to get swatted, and Cyril will need to go cap in hand if, and when, Western sanctions strike, or less favourable trade agreements are put in place.
AND, as if all the above wasn’t enough, November brings us the US election. At this point the bookmakers have the Republicans as very slight favourites to win, which in turns makes Trump slight favourite to be re-elected (you really can’t make this up). As my wife asks: if America’s Got Talent can find the most incredible performers in the most obscure, tiny, back-water, Middle-American towns, how can it be that after all this time, their leading candidates for The Most Important Job in The World are these two plonkers?
What others say
Daily Maverick – Jacob Zuma, the violence-monger: Concern over unrest in 2024 polls
“The SA Human Rights Commission’s inconclusive findings about the 2021 KwaZulu-Natal and Gauteng riots should serve as a warning about the potential for more violence in the upcoming elections. The fact that former president Jacob Zuma is campaigning for a new party may increase the chance of such incidents occurring. However, there are still factors that mitigate against the use of public violence as a political tool.”
IB Times – Asian stocks mixed after Wall St record, eyes on Evergrande impact
“They were also trying to ascertain the long-term impact of Monday’s order from a Hong Kong judge to liquidate indebted developer Evergrande, which fanned fresh fears about China’s already fragile economy.”
Reuters – Gold prices edge up as traders brace for Fed rate decision
“Gold prices ticked up on Tuesday supported by a slightly weaker dollar and lower Treasury yields as investors primed for the U.S. Federal Reserve’s policy meeting for updates on the timing of its interest rate cuts.”
What we think
Last week we said that “…expect the unexpected is our mindset for the time being, (as) the ZAR seems ready to continue its trajectory upwards, though what the potential trigger for this may be is yet to be unveiled.”
We take on a similar approach this week as, while news from South Africa slows down, data releases pick up globally. We will be looking forward to the ADP non-farm employment change, which may give some insight as to what we may expect on Friday as the notorious non-farm payroll figures are released. The interest rate decision out of the US will be happening on Wednesday evening, and the forecast for interest to hold flat at 5.5%.
In other markets, there is the GBP interest rate decision that will be released on Thursday this week and expectations are for it to remain flat at 5.25%. We are also looking at the AUD inflation print that will occur on Wednesday with expectations for inflation to increase both YoY and MoM.
Should there be no surprises from these data points, we’re still slightly bullish for Rand move closer to the R18.60/USD level.
Our range for the week: R18.50/USD – R18.95/USD.
Have a great week ahead.