OVERVIEW

Investors took advantage of the biggest rate hike in over 20 years from the Fed this week, taking USD/ZAR to R16.20/$ on Monday, levels last seen in December 2021.

The US delivered their biggest interest rake hike in around 20 years this week rallying the dollar to over R16.00/$ before the monetary policy announcement. This comes after the Fed decided to raise the interest rates by 50 basis points, with taming of inflation being their main concern – this is the worst inflation has been in America for the last 40 years. The Fed also implied that there will most likely be further interest rate hikes at future meetings and held firm that the rate hikes should not exceed 2% for the year. The Fed will start tightening their balance sheet by $95bn from September, indicating a recovering and growing economy. We can now conclude that the Fed has started acting in a more aggressive stance with the US economy. Investors are optimistic that the Fed will deal with inflation accordingly whilst avoiding going into a recession.

Another factor currently contributing to Dollar strength is the weekly jobless claims, continuing claims fell 19,000 to 1.384 million. Productivity in the US however plummeted by 7.5% in the first quarter. An increase in weekly jobless claims paired with wage increase could most likely keep inflation hot for a while. Nonfarm payrolls in the US is expected to come in at 3.5% today.

Locally, the Minister of Public enterprises Pravin Gordhan has raised the possibility that Eskom’s rolling blackouts stages could lead to stage 8. The country is currently on stage 2 of load shedding which has also resulted in City Power taking on a lot of pressure. The DA has suggested that the State of Eskom be declared as a “State of Disaster”.

Technically:
The USD has proven to be resilient. Although investors priced in a hawkish Fed, the Dollar continues to gain. The USD/ZAR pair touched R16.19/$ on Monday but struggled to break through, we can see the pair test those levels again today as markets try to gain some momentum. Without enough market players and liquidity, the pair could retrace to R15.60’s again. We can see USD/ZAR trade within the ranges of R15.41/$ and R16.20/$, should the range break toward USD strength, the pair could test R16.38/$.

european markets

The war between Russia and Ukraine continues. The EU has proposed some of its toughest measures against Russia. They have imposed a total ban on oil imports and sanctions on war crime suspects. The EU has been focusing on weaning itself off from Russian oil and the president of the EU commission has said that they will try to phase out Russian crude oil within six months. The EU has also pledged to reduce gas imports by two- thirds before the start of 2023. We could see oil rally and the demand for the commodity increase significantly as concerns grow of the bans in the EU.

Technically:
The EUR remains soft due to the Russia vs Ukraine war which is just on their door step, however it has been gaining on the back of a stronger Dollar and risk appetite for developed market currencies. We can see the pair trade within the ranges of R16.35/€– R17.20/€, if the pair breaks through support, it could test R16.38/€.

uk markets

The Bank of England has raised its interest rates by 25bps totalling 1% but this has since flagged the risk of the economy going into a recession as inflation is extremely high and persistent on ravaging through the economy, currently at a 30-year high and is set to peak at 10% when the UK sees Autumn. The BoE has warned that the UK faces a piercing economic slowdown this year. The bank’s policy makers has mentioned that there has been a vast deterioration of the economic growth outlook in the country. Policymakers also expect the economy to shrink drastically in the fourth quarter of the year and growth is anticipated to decrease by 0.25% next year.

Technically:
We can see the GBP strengthen as well on the back of a stronger Dollar. We expect the GBP/ZAR pair to trade within the ranges of R19.36/£ – R20.27/£. We don’t expect any huge moves from the UK as fears of a recession looms over the country.

Technical levels to watch for the upcoming week: