February 06, 2024
MyCURRENCY News | Week 6 2024
What we know
It’s a difficult job being an optimist in South Africa, at least for long. Just when you think the ZAR is about to enjoy a touch of respite and target some lower levels, the metaphorical rug gets pulled out from under you. And so, it was not much different last week, when after having enjoyed a week of gains from a high of R18.90/USD to as low as R18.52/USD on Friday morning, it all started to unravel by that afternoon with the release of the infamous US Non Farm Payroll (NFP).
On Wednesday, the US Fed held rates at 5.25%, however more importantly their forward guidance spoke to the imminence of rate cuts, at least the lack thereof. Powell seems certain that under current circumstances we won’t see a cut until after the March Fed meeting. The market seemed in two minds following this announcement with the USDZAR oscillating between R18.50/USD and R18.70/USD. Though, with the NFP coming in hot on Friday with a better than expected result (353K jobs added vs the expected 180K), this saw all uncertainly vanish and the USD bulls took hold, pushing the USDZAR to R18.93/USD by the days close.
While not a new or shocking revelation, the ZAR’s knee-jerk movements still leave us in awe – the Dollar Index appreciated by 1.51% from Friday while the USDZAR moved by a staggering 2.58%. That’s a large premium and disconnect for the ZAR and shows that risk off sentiment remains a key driver in the markets valuation of our currency.
What others say
Moneyweb – Africa is battling high debt, demands to spend and collapsing currencies
“Government debt has risen in at least 40 African countries over the past decade. As a result, some are experiencing a bad combination of high debt, elevated development spending needs amid budget shortfalls, and unfavourable exchange rate pressures.”
Visual Capitalist – Visualized: Past interest rate cut cycles and 2024 forecasts
“After a rapid set of rate hikes throughout 2022, the U.S. Federal Reserve now faces the challenge of timing its easing of monetary policy to ensure a soft landing for the economy.”
Reuters – South African coal miners turn to trucks as rail service deteriorates
“Mining companies in South Africa have resorted to trucking coal to ports to meet a surge in European demand since the war in Ukraine started, bypassing the deteriorating rail infrastructure they blame for billions of dollars in lost revenue.”
What we think
Last week we said that “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.”
After reading the above, the term foreshadowing comes to mind, though I can’t say we’re all too happy about being right. The return to classic erratic trading for the USDZAR is not something we long for and we trust our clients don’t either.
On that note, there are a few news events this week and in the pipeline for next week too, that certainly won’t help stabilise the USDZAR.
Throughout this week we have the various Fed members speaking after hours and their remarks are sure to shape market sentiment. They will give insight to the Fed’s projections as well as estimates of outside pressures to the system in the year to come. Thursday sees the two most important events with China releasing their inflation and PPI numbers in the morning along with the US’s initial jobless claims that afternoon. As we’ve mentioned before, China’s growth forecasts have a major influence on SA’s own prospects and so we expect some choppy trading to follow.
Our range for the week: R18.75/USD – R19.25/USD.
Have a great week ahead.