February 21, 2023

Currency News

MyCURRENCY News | Week 8 2023

MyCURRENCY News | Week 8 2023

What we know

Last week’s data releases guided the FX markets like a conductor guides his orchestra to a dramatic crescendo. The rand had just broken through the key R18.00/USD early Monday morning, the first time since early November 2022. This spike up through the hugely psychological and pivotal R18.00/USD level, presented an opportunity for USD bulls to push the rand all the way up to R18.30/USD over the course of the week. It does seem that the run higher was not sustainable, as is often the case when the rand runs hard in a short period of time, with it subsequently subsiding on Friday afternoon.

This week is an outlier when compared to most, as we shift our attention to domestic news almost entirely with 2 key events taking the mainstage. Namely, the budget speech tomorrow the 22nd of February at 14h00, and the conclusion of the FATF (Financial Action Task Force) 5-day meeting on Friday the 24th of February. The ANC has become increasingly aware that they are between a rock and a hard place. They are polling lower and lower among their constituents and need to appease voters ahead of the next general election in 2024.

This means that the treasury will need to balance their fiscal responsibility with the goals of the government. Though, that statement seems somewhat rhetorical, given we all know the scales tip in a certain direction on a regular basis when these ‘tough’ decisions need to be made by those in power. 

The knock-on effect however will come if the FATF concludes SA is to be greylisted. This will have unwanted consequences for local banks and the government itself when it comes to sourcing funding from offshore. An unwanted consequence of this would be an increase in our already ballooning Debt-GDP ratio. It is therefore imperative as always that the treasury ‘walk the line’ this coming year.

What others say

BloombergEskom debt albatross hangs over South Africa’s plans to stabilise budget

“South African Finance Minister Enoch Godongwana faces the task of incorporating a credible debt-relief plan for the stricken state power utility in the national budget while stabilising government finances as record blackouts weigh on the economy.”

MoneywebCosts for banks and SOEs could spike if SA is greylisted

“Key state-owned enterprises have already been undermined by misappropriation of public funds and mismanagement, and a greylisting could raise investor concerns that concerted efforts to improve governance and oversight may prove ineffective against rooting out corrupt practices within the largest state-owned enterprises.”

ReutersBiden walks through Kyiv to show resolve ahead of war’s anniversary

“The anniversary has taken on more than symbolic significance, becoming what the West views as the principal motivation for the war’s deadliest phase, with Moscow hurling thousands of conscripts and mercenaries into a winter offensive.”

IB TimesTech layoffs 2023: Over 108,000 employees have lost their jobs in 2 months

“As the tech industry continues to reel from the economic downturn, more than a hundred thousand employees have been laid off so far this year alone. For comparison, the tech industry cut a total of 160,997 jobs in 2022.”

What we think

Last week we said that “we can’t help but feel somewhat bitter-sweet following the Rands dismal performance. Sadly, our outlook has not changed, though the potential downside would be slightly less given that we have experienced such a drastic movement in such a short time.”

Although, we think there may only be limited downside risk due to the already inflated USD/ZAR rate, this should not be construed as ZAR optimism. There are significant difficulties both internationally and domestically that need to be tackled before a sustainable rand rally can be achieved. Right now, the volatility being experienced in markets is not conducive to rand strength. This uncertainty leaves emerging markets like us open to sharp sell-offs in the short term.

Our range for the week: R18.00/USD – R18.45/USD.

Have a great week ahead.