February 21, 2022

Currency News

MyCURRENCY News | Week 8 2022

MyCURRENCY News | Week 8 2022

What we know

Like in The Boy Who Cried Wolf, global markets hardly bat an eye in response to the latest scandal domestically in SA, no matter how much of a fuss our politicians kick up. So, it’s a sort of awkward yet proud moment when the silliness that drives the Rand is not due to some local mishap. Though, these offshore events are almost always far more serious and therefore merit the bedlam that ensues.

So here we are, sitting helplessly and waiting to see if Russia does or does not start what could very well devolve into WW3. Understandably, the international stock markets are not warming up to this idea with Asian markets having turned red overnight, thus painting a bleak backdrop for the rest of the week globally.

Looking back at last week’s movements, despite growing risk off sentiment globally, the Rand has remained resilient and is starting to consolidate around the R14.95 – R15.20 level. It’s been a tense week as news comes in dribs and drabs; the US Fed released its minutes last week that laid out in more detail their plan for reducing government spending in the coming months which saw the USD rally. 

Not long after Russia withdrew troops from the Ukraine border after ‘military drills’ concluded, this lead to an emerging market recovery, only to be followed by a reversal as Russia announced it would be testing its nuclear capabilities. This stuff is not for the faint of heart.

What others say

BloombergU.S. agrees to a Biden-Putin summit in principle: Ukraine update

“U.S. President Joe Biden has agreed in principle to attend a summit with Russian President Vladimir Putin, as long as Russia doesn’t invade Ukraine, the White House said.” 

Visual Capitalist The future of global coal production (2021-2024F)

“Despite its large footprint, coal was in high demand in 2021. As economies reopened following the start of the COVID-19 pandemic, countries struggled to meet resurgent energy needs. As a readily available low-cost energy source, coal filled the supply gap, with global coal consumption increasing by 450 million tonnes or around +6% in 2021.”

ReutersTurkey’s opposition leader looks to emerge from Erdogan’s shadow

“A veteran Turkish political leader who has struggled for years to have President Tayyip Erdogan voted out of office says it is “very clear” that his dream is drawing nearer, even as doubts remain about whether he will be the main opposition candidate at presidential elections set for 2023.”

Financial TimesBeware the algorithms driving up oil prices

“Normally this does not get much mainstream attention, because derivatives trading is so arcane. But currently this corner of finance is producing numbers that are even more startling than $90 a barrel. And it could drive spot prices way above the $100 mark in the coming months — and spark an equally dramatic crash further down the road. Futures prices are in a state of what analysts call “super backwardation”, meaning that there is a near record high level gap between (high) short-term futures oil contracts and (lower) long-term contracts. However, another sign of dislocation is the volume of bets placed about future oil prices via the options market.”


What we think

Although the Rand is managing to hold its ground and linger around the R15/USD level and trade within a slightly wider range, the risk to the topside (Rand weakness) seems to grow greater with each day that passes. Should the Ukraine-Russia debacle escalate, a rush to safe haven assets like the USD would see the Rand lose ground at breakneck speed. We are teetering on the edge of a knife at present and the slightest breeze could knock us off balance. Some extraordinary leadership is required from the big dogs in order to manage this situation without it degrading into a ‘geo-political’ street scuffle. Sadly, at present this seems to be lacking and Putin is taking full advantage.

This Wednesday does see a major local event on SA’s radar as we prepare for our 2022 Budget Speech. Local bonds and our currency have already moved much stronger in anticipation of a favourable showing. So, we would expect the Rand to trade sideways if the Budget meets expectations as much of the positive outlook has already been taken into account.

Our range for the week is R14.90/USD – R15.40/USD.

Have a great week ahead.