OVERVIEW

A highly volatile week for the rand as the dollar closes in on it’s best week in 5 months.
Markets turned to the dollar as a safe haven with expectations rising that an interest rate hike is near due to inflationary pressure.

Dollar strength is dominating as the American currency is finding support in investors grinding their gears over what inflation will push the US Fed to do.
With US CPI figures showing that inflation has spiked to a 30 year high this week, the natural conclusion for investors is that the US Fed will have to raise interest rates, for the first time since pandemic rate cuts, in an effort to try and offset the high rise in prices of goods and services.

Normally inflation would weigh on an economy as it indicates a tougher time for consumers, but some view it in the light that it may benefit the economy because businesses raise their prices and may make greater profit.
Either way the digestion of this occurrence is pushing investors to bet on the dollar from a purely speculative manner, the Fed hasn’t given a hawkish (aggressive) talk but because markets expect a hawkish talk it is pushing bids in the dollar’s favour.
A good example of how often market movement is based off sentiment and not fundamental facts.

In last week’s round up, we mentioned factors that would influence the rand would include our ‘mini-budget’ speech and SA’s energy crisis in the form of Eskom.
This was accurate, the budget speech kept investors out of the rand due to uncertainty of the how the talk would go and Eskom’s continued trouble is a worrisome issue for markets as it would naturally affect businesses and consumers, eventually leaking into our economic growth.
 
What to expect next week :
Today’s price action will give an indication of how markets will digest immediate inflation ripples, our budget speech and the current strong US labour market. Elevated levels are expected to support the dollar until global economic growth gives market players the confidence to go into risker currencies like the rand.

Policy in the eurozone remains solidly on the dovish side – meaning that officials are taking a balanced and patient stance on the interest rates, economic plans and tools.
Without aggression in the guidance, the dollar is pressuring and giving more space for the euro to slip weaker.

To add to euro pressure is the slow but sure tightening of public health measures which are taking place around the block.
Cases in Germany and the Netherlands have spiked to new unseen highs and as a result measures are being prepped for restrictions.
Cancellations of events, closing of cinemas and restaurants are also sure to affect investors view on the EU economy.
Events to look out for include – ECB official Lane guidance on the EU economy later today, and next week’s EUR GDP data and CPI figures will be released.

Technically:
Our EURZAR outlook from last week gave an accurate prediction of the pair’s movement between R17.37/€ up to R17.74/€ and back down to current levels of R17.55/€.
Looking to next week the euro will surely follow the dollar’s beat, look out for ranged movement between R17.20/€ – R17.65/€ with bias being to the downside.

Official stats showed that the UK economy increased by a bigger than expected 0.6% in September from the month prior.
The British housing market is also on the up as research showed a large rise in prices of homes as demand increases and citizens are taking advantage of their low rate environment.
Despite these numbers, the pound reversed it’s gains this week slightly however still remains high and well over R20.40/£ on GBPZAR.

To no surprise, Brexit woes continue to impact the UK – Britain and the EU remain far from reaching an agreement over the Northern Ireland border. It is getting to the point where the UK may suspend parts of the Northern Ireland protocol automatically and this would be negative for the pound.

Technically:
Elevated levels are maintained on the pound, however the pair of GBPZAR has dropped from its high of R20.70/£.
For the week ahead and in light of current UK affairs, we anticipate a testing near lows of R20.20/£ and movement around R20.35/£.