February 07, 2023

Currency News

MyCURRENCY News | Week 6 2023

MyCURRENCY News | Week 6 2023

What we know

Last week, while trying to establish a firm view and shrug off the lack of conviction we’d been feeling since the start of the year, our dealers inadvertently arrived at a somewhat unusual compromise:  we had high conviction that a significant move (>2%) in ZAR.USD was coming, we didn’t, however, have the foggiest idea in which direction that move would be. 

The reason for this was simply the realisation at just how range-bound the USD (as measured by the USD-index, DXY) had been over the past couple of weeks, trading within a 1% range since 12 January.  Given the slew of big data points due out last week, most notably the Fed announcement, ADP employment change and Non-Farm Payrolls (NFP), something almost certainly had to give.

And so it was that the roller-coast whiplash began:  first, the Fed hiked rates by 0.25% as expected, but came across the most dovish (more accurately, least hawkish) in terms of the pace and extent of future hikes.  Markets rallied, the USD tanked and risky assets road along for the risk-on ride.  The Rand itself rallied over 3%, looking as though it could even go on to test the 3-month best level of 16.70 seen in mid-January.  

We were right!  We’d seen the big move and, as things turned out, it was in the Rand’s favour…

Fast forward fewer than 48 hours:  the BoE and ECB announced their rate hikes as expected and all eyes were on the unemployment and NFP numbers.  An in-line or soft print there and more pain for the USD was all but a certainty.  And then… a massive NFP print, coming in at 517,000 vs 260,000 previously and 185,000 expected.  Markets dipped, the USD rallied, and risky assets were kicked out the car and left on the side of the road. 

We were right!  We’d seen the big move and, as things turned out, it was not in the Rand’s favour…

What last week illustrated so beautifully was the utter unpredictability of financial markets.  With the current situation where moves are so data-driven and all eyes are waiting and watching for the same announcements, it’s easy to know what to look for, yet nearly impossible to call the outcome.

When all was said and done the ZAR.USD opened the week at 17.20, reached its best level of 16.92 on Thursday before closing the week just under 17.50.  The Rand’s loss against the EUR (18.70 to 18.90) was smaller, while it enjoys a small gain against GBP (21.30 to 21.05) as Sterling gave up some of its recent wins. 

What others say

News 24Rand takes hit as US jobs surge sends dollar higher

“Data showing that after a five-month slowdown in hiring, the world’s biggest economy added 517,000 jobs in January, may have dented hopes that the US Federal Reserve could slow interest rate hikes further or even reverse them later this year.”

IOLRand tumbles in wake of persistent load shedding hurting outlook, food prices

“The rand plunged to a seven-week low yesterday amid the risk-off environment over rising concerns about the impact of South Africa’s power crisis on the country’s outlook.”

ReutersEarthquake rescue work moves slowly as death toll passes 5,000

“The magnitude 7.8 quake – Turkey’s deadliest since 1999 – hit early on Monday, toppling thousands of buildings including many apartment blocks, wrecking hospitals, and leaving thousands of people injured or homeless in Turkish and Syrian cities.”

Visual CapitalistVisualizing the scale of global fossil fuel production

“Fossil fuels have been our predominant source of energy for over a century, and the world still extracts and consumes a colossal amount of coal, oil, and gas every year. This infographic visualizes the volume of global fossil fuel production in 2021 using data from BP’s Statistical Review of World Energy.”

What we think

Last week we said that “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.”

As should be fairly clear from what we’ve written earlier, while the Fed looks likely to be more reactive than outright hawkish going forward, the spanner-in-the-works that was the NFP number means that the guessing game will continue in the coming weeks and months, and data points out of the US will continue to keep markets at their mercy.  Our suspicion is that the aggressive hiking from the Fed since last year, will have the desired effect and that signs of a slowing economy will continue to appear, allowing for the end of Fed hikes to come onto the radar, and reduce the risk of a rampant USD.  The caveat, as always, will be unknown geopolitical shock or global disasters that unfortunately seem to now be the norm.

The rest of the month sees the focus shift back onto domestic issues, with SONA this week, the budget speech in 2 weeks’ time, and the usual political and electrical shenanigans that seem to now be part of everyday life in Mzansi.  Against that backdrop, it’s hard to argue for ZAR-specific strength until after these events have taken place.

Never a dull moment (albeit many in the dark). 

Our range for the week: R17.40/USD – R17.90/USD.

Have a great week ahead.