overview

The Rand is on track to end this week on a strong note, amidst global inflation woes and the daunting Russian invasion, resulting in commodity strength with the price of Gold topping $2,050.

The Rand has been on top form this week trading close to its support at R15.00 and that is driven by numerous factors, a major one being the commodity exports increasing such as gold, platinum etc which South Africa is best known to represent. Added factors are also investors pulling out of the US and other developed markets due to the uncertainty filtering through.
US CPI has spiked to a four decade high last month, this is the highest its been since 1982. Economists suspect that another CPI hike of 8% is most likely to occur this month due to the high price of oil.

The surge in inflation is definitely cause for concern as inflation is far above the average estimate and will most likely lead to the first rate hike in four years, followed by at least two more throughout the remainder of the year. FED Powell has already expressed that he is prepared to move more aggressively and also mentioned that he is willing to back a quarter point rate increase with their next meeting. With this being said, consumers will feel the wrath of the excessive increase of inflation in the country with monthly consumer prices having risen to 7. 9% in February plus an interest rate hike.

With inflation being so high in the US as well the increase of oil, investors are taking full advantage of the commodity boom right now which is acting as an alternative safe have providing more stability than currencies. After the US CPI data was released yesterday, gold topped at around $2,050 which will aid the rand’s strength.
President Joe Biden is expected to announce the revoking of “most favoured nation” status for Russia and this is referred to as normal trade relations in the US, which now means that normal trade could stop between the US and Russia potentially increasing tariffs for Russia on US products.

Technically:
The USD demonstrated  market dominance over the last 3 weeks leading into the start of this week however the Rand backed by a commodity export boom stopped the USD strengthening by Tuesday afternoon. Following the sideways channel on our daily graph which USD/ZAR has been following since the 18th of January 2022, we can see the currency pair trading at the bottom of this channel providing some good buying opportunities for South African importers. Our levels to watch are still R15.00 on the support and R15.50 on the resistance but a break out of R15.00 would indicate a bigger stride toward the R14.90’s area.

The European Central Bank has decided not to raise interest rates leaving the benchmark rate at 0%, marginal lending at 0.25% and the rate on its deposit facility at 0.5%.  The Euro continues to dip due to failed talks between Russia and Ukraine as the war rages on. ECB President Lagarde has stated that the Russian invasion has the potential to bring down the economy and push inflation up even higher. ECB has said that they will be implementing an end to their large bond buying programme within the third quarter, if the economic data will allow them. They have also announced that they will be winding down asset purchases. The markets have digested the ECB’s interest rate decision negatively resulting in a bearish sentiment for the Euro. The central bank is keeping their monetary policy tight however have noted that an interest rate hike is due, when this will be is still very uncertain.

The Russian invasion still continues to affect the country profoundly. After the peace talks fell through yesterday, the country and the Euro is remains volatile and continues to weaken. Russia is adamant on taking over Ukraine despite sanctions, talks of oil bans as well as being cut off from normal trade by the US.

Technically:
The Euro is currently at the weakest it has been in around 9 months. This again, is a great time for SA importers to be purchasing Euros at Spot and Forward.  The Euro fell drastically after escalations of the war from Russia negatively affected the European economy. Investor sentiment is unfavourable toward the Euro and hence we have and continue to see a sharp decline on the currency. As the uncertainty escalates with every passing day, we can see a possible low of R16.45 and a high of R16.93 for the upcoming week.

The Pound has fallen this week with many other major currencies due to Putin’s escalations in Ukraine. The GBP/ZAR pair is trading in a bearish pattern. It is very evident that the Russian invasion has affected many countries squeezing the cost of living and reducing economic growth. With that in mind, inflation in the UK is sky rocketing and could be seen peaking above 9% resulting in a very tight squeeze on household disposable incomes.

Expected GDP growth could be between 0.75% or lower than it would normally have been. The high oil and gas prices, surging inflation and tighter financial conditions will continue to have a negative effect on the country and its currency.

In further escalations, the UK continues to sanction Russian citizens, businesses etc and is set to phase out all Imports of Russian crude oil as well as oil products by the end of the year if the war continues.

Technically:
It has been around 5 months since we have seen these levels on GBP/ZAR and any further breakout could see the currency pair reach around R19.45. “Risk off” sentiment in the market has negatively affected the GBP. The UK hopes for a de-escalation soon in regard to the Russia-Ukraine war as the uncertainty that has filtered into the markets affects all. The ripple effect of this war has had direct impact on the UK’s inflation adding to its adverse appeal in the markets. Following previous lows we could see R19.54 and any breakout could see R19.45 on GBPZAR for the upcoming week.

Technical levels for the upcoming week: