overview

The U.S economy is facing its toughest inflation problem since the 1970’s and early 1980’s. The effects of this coupled with a shortage of oil supply, is being felt globally. On the other hand, The Rand is performing better against major currencies this morning.

u.s and sa markets

U.S inflation data was released on Wednesday and did show slight easing, however markets digested the data with excitement that the FED would take high inflation as the push needed to hike rates even higher than 50 bps so USD/ZAR tested R16.26/$ again. The FED Chair, Jerome Powell said yesterday at a conference that the U.S central bank’s battle to regulate inflation would “cause some pain” as the impact of higher interest rates is being felt by consumers, and that these effects will continue to span out as prices are expected to further increase. Powell has re-iterated that they will be hiking rates by 50 basis points in the coming meetings, but should data be not favourable, the FED is prepared to do more.

The Rand is on track to gain support leading up to our interest rate decision next week Thursday, 19th of May. It is unclear whether the SARB will decide on a 50 bps hike but in all likelihood, the SARB will take its direction from the FED and pursue a 50 bps hike or higher due to rising inflation. The price of Gold remains low which does show support remains in the short term toward safe haven assets. Covid-19 cases are on the rise and Eskom continues to implement a few hours of load shedding daily, as we head into winter we note this might affect sentiment negatively toward the ZAR and might start showing in our business confidence figures soon.

Technically:
The greenback tested the high of R16.26/$ yesterday for the second time forming a double top formation which is a bearish signal (stronger rand expected). Yesterday’s low was R16.05/$. The USD/ZAR opened today at R16.10/$. The pair is likely going to test lows of R15.88/$ today or early next week. Should the pair break the R15.88/$ support levels, we could see a Rand rally take place toward our interest rate decision.

european markets

On Wednesday, the Russian Ruble was announced the best performing currency this year thus far, though not many people can pocket the profit on the rally. On Wednesday the Russian Ruble resumed its bullish streak against the Dollar and is up now up more than 11%. Despite the sanctions imposed on the Russian Federation, the country has forced exporters to sell foreign exchange and be paid in its local currency, the Ruble.

On Wednesday, the ECB’s President Lagarde made a speech where she touched up on the Russian-Ukraine war and how it has exacerbated all the main drivers of inflation, increasing economic uncertainty and clouding the growth outlook. Inflation expectations are around 2% and projections point towards inflation being on target over the medium term. Lagarde mentioned that the ECB plans to end asset purchases early in the third quarter of this year and to have the first rate hike some-time after that.

Technically:
The Euro had a high of R17.07/€ yesterday. Today we opened the market at R16.72/€ . These are really good buying levels for clients planning on buy the Euro. Should the Rand continue to strengthen next week, we may see the pair test R16.40/€ . At the moment the EURZAR is at support of R16.64/€.

uk markets

U.K Prime Minister, Boris Johnson has demanded his cabinet come up with a plan to slash about 90,000 civil service jobs to free up cash to tackle the cost of living. Johnson has given Ministers a month to devise clear plans on how to cut government costs surrounding civil service as the pressure of living costs sky rockets. He further mentioned to the Daily Mail that the savings could be used for tax cuts.

Technically:
The Sterling had a high of R19.83/£, opening today at R19.64/£. Much like the other 2 major currencies, the Rand is strengthening against the pound sterling as well. The GBP/ZAR is likely to test lows of R19.43/£ by early next week. For clients looking to buy the Pound, it is a good time to buy considering the pair was at R20.10/£ on Monday.

Technical levels we are watching for next week: