Rand News - Week 2 – Sore Dollar Allows Rand To Soar.

Dollar’s counter-cyclical behaviour and market players closing positions plays into the hands of Rand importers.
Post CPI data and certainty of US rate hikes have allowed the rand to reverse late 2021 losses.

SA Markets

This week, the rand saw some of it’s strongest trading days since the beginning of November.
Thoughts are that investors pulled out of earlier long positions taken in the dollar last year to now secure their profits.
This profit taking as well as an improved global economic sentiment helped riskier currencies like the rand see a rally off of recovery optimism.

Key US data was released on Wednesday and saw the dollar fall to 2 month lows after inflation data was higher than anticipated but did not meet the high expectations of investors, and thus pushed the dollar to fall as opposed to rise off of the hot inflation data – investors ended up closing their buy positions in the greenback.

What to expect:
Keep in mind that the dollar is ‘counter-cyclical’, meaning that when the global economy seems to be recovering then the dollar suffers as bidders no longer rush to the dollar for safety, feel confident to trade riskier currencies and pull out of previous long positions they had in the greenback.
Rate hikes and more aggressive talks from the Fed will be the focus of investors as we approach Feb.
Coming weeks wont be that easy as ‘rate hike = dollar strength’, but a combination of employment outlooks, stimulus and inflation progress will also fluctuate the dollar’s performance.

Technically:
Having broken through R15.40/$, USDZAR will now eye the next resistance of R15.25/$.
Should the rand rally gas out and the dollar regain of off pandemic fears or rate hike impetus then we will revisit previous resistance levels of R15.55/$ and a high of R15.70/$. The markets mood does seem to be dollar negative at the moment but until another break occurs the pair will range between R15.40/$ and R15.25/$.

European Markets

The euro’s movements are influenced by the European Central Bank comments, however officials have a habit of playing it very passive and straying away from any aggressive comments. The ECB VP stated yesterday that the economy is getting used to the coronavirus outbreak and the monetary team expects inflation in the EU to remain under the targets for 2023 and 2024 – these comments seemed to have strengthened the euro against it’s dollar counterpart.

Furthermore, later today will see the President of the ECB Lagarde give a speech and investors will be monitoring the tone of her talk.
Trade balance data is also out for the EU and this will be measured up against other nations results.

Technically:
EURZAR stayed true to our predicted range, mostly on the bottom end as the rand strengthened.
Straddling around a support of R17.65/€ with the next possible lows being R17.55/€ and R17.30/€ if that is shattered.
We can expect to range around R17.58/€ and R17.75/€ until volumes push us lower or we see a rebound upward.

UK Markets

The rand also gained against the sterling this week, dipping it’s toes slightly under the R21.00/£ mark.
Despite giving up ground to the rand, the pound is up 4.5% from it’s lows in December and has gained against major counterparts due to investors feeling that the British economy can withstand a spike in pandemic cases.
This sentiment surely comes as a result of the self-isolation period in the UK being reduced to 5 full days from the original 10 days.

UK unfilled jobs revealed it’s slowest result in 8 months, only if this becomes a persistent trend will it significantly contribute to pound strength.
The increasing of UK rates, which is expected next month, will also begin to play on the pound. As well as data such as GDP and manufacturing production numbers released early this morning.

Technically:
The GBPZAR dropped 30c this week, leaving us around current levels of R21.10/£. Yesterday we failed to properly break R21.00/£ and this is likely to be a strong support. Once that is broken then the road is clear to R20.87/£. We might see a retracement back up to R21.20/£ before this occurs.

USD/ZAR

High – R15.70/$

Support – R15.35/$

Low – R15.05/$