December 12, 2023
MyCURRENCY News | Week 50 2023
What we know
Last week saw the Rand quickly settle into what proved to be a fairly tight range against the USD of R18.70-R19.00/USD. There were two main economic releases that were the focus of attention:
- Tuesday’s local GDP number which, while expected to show a contraction, was even worse than what the market had anticipated, printing at -0.2% QoQ (-0.1% expected) and -0.7% YoY (-0.2% expected). The market responded fairly swiftly to this disappointment, with the Rand moving from R18.75/USD at the time of the release, to just over R19.00/USD a few hours later.
- The Non-Farm Payroll figure that was released on Friday. While obviously not the only factor at play, this is always a significant data point for the market in terms of trying to look forward and anticipate what the coming months will bring in terms of the Fed’s rhetoric – and action – with regards to the interest rate outlook. As such, the Dollar Index (DXY) did move slightly higher for most of the week, at its best being up almost 1.2% compared to where it started. The NFP number did come out stronger than expected (199k vs 180k), as did the unemployment rate (3.7% vs 3.9%). While these beats weren’t significant enough to give the Dollar another leg up, they did allow the greenback to hold onto most of its gains for the week.
Ultimately the two key takeaways from the above are fairly simple:
- Low growth and high inflation are not a great combo and as long as this continues, the attractiveness of South Africa as an investment destination remains limited, which in turn will continue to put pressure on the currency. Add in the wildcard of load-shedding, and forecasting the economy’s prospects for recovery remains a challenge. In such an environment, it’s hard to make any sustained headway against (especially) the major developed currencies.
- Although it feels as though the US rate hiking cycle is slowly shifting towards heightened anticipation of when the cuts will start, economic data out of the US continues to be mixed, supporting the relative USD strength for now. Recall that the DXY trading we’ve seen for most of the past year represent the best levels for the USD of the past 20 years. Current geo-political tensions only add to the appeal of the USD as a safe-haven investment.
What others say
Daily Maverick – UPL asked to explain how ‘Agent Orange’ war poison chemical ended up in Durban river
“The banned pesticide 2,4,5-Trichlorophenoxyacetic acid has been found in samples collected by consultants looking into the aftermath of the UPL chemical fire. The company says it ‘never imported, stored, or traded this compound’.”
Bloomberg – South Africa plans more nuclear power to ease supply crisis
“South Africa plans to get 2,500 megawatts of new generation capacity from nuclear sources in a bid to tackle blackouts that have crippled the nation. The first of the new units will likely be operational in 2032 or 2033, Department of Energy Deputy Director-General for Nuclear Zizamele Mbambo told reporters Tuesday in the capital, Pretoria.”
Moneyweb – NHI means 31% more tax and 69% less benefits for medical scheme members
“Other than expropriation without compensation, few statutory artefacts have elicited such exasperation from those most affected – medical schemes and their members, for the most part. Should the bill pass as is, it will almost certainly be challenged in the courts on the grounds of irrationality and constitutionality, primarily because the country cannot afford it.”
What we think
Last week we said that “…the Dollar Index (DXY) has bounced off 4-month lows at 102.50 and is now trading at 103.68. Should the DXY continue to appreciate to the previous resistance level of 104.50 and the USDZAR were to move in lockstep with the DXY, that would see us move to just shy of R19/USD…(t)he international market has generally been unperturbed by our local political shenanigans, though there seems to be a little more interest seeing as (we have) a national election (next year)”
There’s a surprising amount of data due out this week, together with interest rate decisions from the Fed, BoE and ECB. With all three major central banks expected to keep rates on hold, it would take some surprising rhetoric to really get the markets moving in response to these announcements.
Locally we also have mining and manufacturing production figures, inflation, and retail sales data, as well as the SARB’s quarterly bulletin.
We do often see the Rand strengthen towards the end of the year, although one feels that if we are going to see any change in momentum, it would need to start in the coming days, as markets should start to quiet down significantly from next week when the holiday mood kicks in.
Our range for the week: R18.70/USD – R19.20/USD.
We’ll be continuing with our weekly commentary in January. In the meantime, happy holidays and a safe, relaxing festive season to everyone!
Have a great week ahead.