February 26, 2024

Currency News

MyCURRENCY News | Week 9 2024

MyCURRENCY News | Week 9 2024

What we know

As we’ve been telling our clients for the past few weeks, predicting the reaction of markets to SA’s annual budget speech is always particularly tricky.  Very often we’ll see the Rand sell off in response to what appears a fairly positive release and, conversely, there are times when a poorly received budget is followed by a period of Rand strength.  Last week’s reaction to the budget highlighted the current uncertainty regarding the Rand’s outlook, with one of the most severe cases of whiplash we’ve seen for some time.  Having traded the first half of the week in a R18.88/USD – R19.08/USD range, we entered the budget at R18.94/USD and immediately moved down to R18.76/USD.

Many felt that the budget was “neither here nor there” in terms of what was said, with others suggesting that it was very much an “election year budget”, trying not to rock the boat before the vote on 29 May.  Indeed, the market’s reaction until Thursday afternoon appeared to agree with this sentiment – despite volatility having picked up somewhat, trading stayed between R18.76/USD – R18.98/USD, very much within this year’s trading range. 

And then… the big sell-off, from R18.97/USD to R19.39/USD from late Thursday to Friday morning.  This was, unfortunately, all about the Rand – while other emerging currencies had gained or lost up to 0.5% in the same period, the ZAR sold off over 2%.  

The above is also well summarised in Investec’s Morning Report today (produced by ETM Analytics (Pty) Ltd):

The ZAR sold off sharply into the end of last week. It is trading at levels last seen in October versus the USD, August against the EUR, and June against the GBP. It has broken out of its recent trading ranges and is now vulnerable to further losses should broader market sentiment deteriorate. While there was already plenty of risk priced into the ZAR ahead of last week’s budget, its selloff on Thursday and Friday is evidence that investors are increasingly struggling to see a longer-term turnaround scenario for SA’s fiscus. Add to that political uncertainty ahead of this year’s elections, and SA Inc. has become a hot potato that foreign investors will look to avoid too much exposure to until interest rates and yields better compensate them for the risk attached to funding South Africa.

Away from the budget the main local data releases were unemployment which provided a negative surprise, growing from 31.9% to 32.1% compared to an expected drop to 31.6%, and inflation, which came out more or less in-line. 

Globally, the FOMC minutes again reiterated that the Fed is in no hurry to start cutting rates, so we’ll need more consistently soft US data for that outlook to become clearer.  

What others say

IB TimesUS Fed official warns of inflationary risk of over-consumption

“A senior Federal Reserve official confirmed Thursday that the US central bank still intends to start cutting interest rates “at some point this year,” but warned against the potentially inflationary effect of over-consumption.”

MoneywebANC pledges to transform financial sector in election manifesto

“The African National Congress (ANC) said it will step up efforts to create jobs, grow the economy and increase access to welfare grants and healthcare as it kicked off its campaign for an election that will be the sternest test yet of its three decades in power.”

WiredNvidia hardware is eating the World

“Nvidia now accounts for more than 70 percent of sales in the AI chip market and is approaching a $2 trillion valuation. Its revenue for the last quarter of 2023 was $22 billion—up 265 percent from the year prior. And its stock price has risen 231 percent in the last year.”

What we think

Last week we wrote that “… it’s certainly possibly that this week’s data releases… together with the budget speech will spark some life into trading and, possibly, give some indication of what the short- to medium-term direction of the ZAR may be.  Recently as long as one has been trading on the “right side” of the 18.60 – 19.20 range, then that’s been fine.  That has therefore been the guidance we have been offering to our clients.  Let’s see if this week’s events are able to shake this view up a bit.”

With the dust now settling from last week, from a trading point of view things aren’t looking good.  The range of the past couple of months has broken through the R19.20/USD top end, with the ZAR.USD currently at R19.32/USD. It’s common for previous resistance levels to become support, meaning that R19.10/USD – R19.20/USD may become the short-term level beneath which the Rand may struggle to move.  Without any obvious catalysts this week, the Rand’s outlook seems likely to depend on GDP and inflation releases from the US.

Our range for the week: R19.10/USD – R19.50/USD.

Have a great week ahead.