November 03, 2017

Currency News

Weekly forex update – 03/11/17

Weekly forex update – 03/11/17

What we know

The ZAR started the week somewhat punch-drunk following the sharp reaction to the MTBS last week.  Our view for the week was for consolidation between 13.95 to 14.20 against the USD and for most of the week this range held.  The key difference between this week and last was the shift from a very South Africa-specific focus, to all eyes being firmly on the US.  The Fed rate decision on Wednesday, Trumps naming of the new Fed Chairman and a slew of important US economic data, meant that the market certainly started the week with a very cautious outlook.  Price action for the most part saw a gradual strengthening with little volatility, the one exception being early Thursday morning as the ZAR broke below 14.00 following the Fed’s (expected) decision to leave rates unchanged.  Friday saw this start to unwind and, despite weaker than expected Non-Farm Payroll data out of the US, the ZAR is currently at its weakest level for the week, 14.24 at the time of writing.

What others are saying

30 October 2017

“Given the terrible budget, we have had to rethink some of our core forecasts. Below are the changes we have made. “

Credit ratings outlook

  • We are now certain about a credit rating downgrade to sub-investment grade on local currency over the next 12 months, it’s now only a matter of timing.
  • The likelihood that the downgrade comes in March or earlier (our previous view was for a June downgrade) through an out-of-cycle review has increased significantly
  • We expect Fitch to change the outlook from stable to negative
  • S&P is likely to put the rating on negative watch. We put the probability that they move in November between 30-40%.
  • We assign a 10% probability of a downgrade by Moody’s before year-end.
  • Expect negative statements from all credit rating agencies over the next few weeks.

01 November 2017

“We would look for multi-day consolidation in this new range if it was not for the event risk due towards the end of the week”

–    Wednesday at 8:43am

02 November 2017

“The rand’s sharp gains overnight, on talk that Powell will be nominated as the next Fed chair, are overdone but the move has psychologically and technically opened scope for a rand recovery multi-day”


02 November 2017
Investec Morning Report

Technically speaking, a retest of the 13.9350 Fibo retrace level remains on the cards and a break below that opens the door for a significant move lower as some stops are likely to be triggered.  Whether that happens today as we head into the weekend and ahead of the US data this afternoon is questionable.  Nonetheless, we continue to caution against turning overly ZAR bearish at this juncture as full-blown ZAR depreciation is not yet justified in the underlying economic imbalances.


What we think

We’ve been calling the ZAR movements pretty well over the past few weeks, largely as we’ve taken a cautious approach to a number of key events that we believed posed risks to the local currency.  Many of these are now out of the way, yet two still remain:  comments from the ratings agencies at the end of November/early December and the ANC conference in mid-December.

While the ratings agencies may very well say that nothing has changed and they will monitor local developments, it is vital to remember that market opinion and sentiment around these announcements will likely be enough to move the ZAR.  Similarly the outcome of the ANC conference is far from known, let alone how commentators and investors may react to any news.

As such, we see little to be gained from taking a bullish ZAR view at this stage and caution our clients not to be too optimistic in deciding how much the ZAR can gain between now and the end of the year.  Indeed, as mentioned last week, we still believe that anywhere from 14.50 to 15.00 remain viable levels for the ZAR.USD between now and the singling of Aul Lang Syne…


Have a great week everyone!