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0081 Week 19 What we know It’s becoming increasingly challenging to
write these weekly commentaries, in a market where the Rand will sell
off 4% - 5% in a fortnight, only to fully recover the following
fortnight and then repeat this pattern over and over. In other words,
apparent periods of strength or weakness are frequently simply the
result of the unwinding of the previous period’s losses or gains,
rather than being particularly newsworthy in and of themselves. It’s
been a year or two in which we’ve constantly had to repeat the fact
that, for the time being, the short- and medium-term moves in the
ZAR.USD are being predominantly determined by the fortunes of the USD
itself, rather than having much to do with South Africa’s political,
economic or social conditions. In turn, USD trading is being largely
dictated by the market’s outlook regarding the timing and scale of
the Fed’s interest rate cutting cycle, a view which chops and
changes continuously in response to the bullishness or bearishness of
economic data releases. Outside of this, current global geopolitical
tensions and changes, may also be providing an underpin to the USD, as
is often seen in times of uncertainty and risk aversion. The net
result is that the Rand has closed every week since the start of
August 2023 (9 months) within an 18.25 – 19.35 range against the
USD. Given how much volatility we’ve seen during that time it’s
fair to suggest that this 6% difference between the high and low
closes may be surprisingly small for many. Locally, while much focus
is on the election in 3 weeks, in the absence of any inflammatory or
controversial electioneering the market doesn’t appear to be
positioning itself one way or the other, perhaps a sign that
expectations are for nothing too different from what we’ve become
used to since Cyril limply took over the reigns in 2018. At least the
near miraculous (and not at all coincidental) pre-election absence of
load-shedding continues to bring some early winter cheer.
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What others say
https://www.dailymaverick.co.za/article/2024-05-06-food-prices-beginning-to-stabilise-says-competition-commission/
Daily Maverick - Food prices beginning to stabilise, says
CompetitionCommission "W hile lower food inflation is a positive sign,
the commission said food prices were still rising at a rate which
could threaten food security and that cost pressures - due to the
energy crisis, transport expenses, and the impact of the drought -
were likely to continue. This will see consumers continuing to
economise by buying cheaper alternatives. "
https://www.cnbcafrica.com/2024/south-african-rand-strengthens-as-fed-keeps-rates-on-hold/
CNBC Africa - South African rand strengthens as Fed keeps rates on
hold " The South African rand strengthened on Thursday after the U.S.
Federal Reserve held interest rates steady as expected and reiterated
inflationary concerns. "
https://www.theguardian.com/us-news/article/2024/may/05/biden-trump-election-poll-accuracy
The Guardian - With six months to go, the US election is more
unpredictable than ever "Depending on the expert, either Biden or
Trump is likely to pull ahead, but this election race is playing out
in an unstable landscape." https://www.bbc.com/news/business-68898432
BBC - US economic growth slows but inflation grows " The US economy
grew by less than forecast in the first three months of this year but
inflation gathered pace, which could delay an interest rate cut. "
What we think Last week we said that, “…the non-farm payroll
releases have been notoriously hard to call of late, with the market
frequently being caught on the wrong side of the USD reaction. We’ll
be right eventually, so let’s flip a coin and hope that we finally
get a weaker than expected NFP number this Friday – that really
would allow for a bit of positive ZAR.USD impetus.” There are times
when it’s easy to mistake a broken clock for a crystal ball. So,
while it was great to see the above come to pass – Non-Farm Payrolls
and the Unemployment Rate both disappointed, pushing the Dollar Index
to its weakest level in almost a month and the ZAR.USD to within 12c
of its best levels in 2024 – we’ve been calling for soft USD data
for some time, while being proven wrong fairly frequently. We do now
need to see more weak US data in the coming weeks and months, which
could then potentially allow the Rand to eye the big 18.00 figure.
That won’t be this week, though, as there is very little scheduled
data out of the US. For those with an eye on the GBP, however, the BoE
interest rate decision and GDP data release will be key. Range for the
week: 18.20 – 18.60
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0081
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