OVERVIEW

The Rand finds support from a 25bp interest rate hike by the SARB MPC and remined on top form this week amid inflation woes.

This week, the Rand has seen some of it’s strongest trading days since October 2021.
Market views are that investors already priced in a 25bp interest rate hike before the announcement yesterday from the SARB and were very pleased with the outcome. The rate hike comes at a time where SA along with other countries are battling inflation but also gives a positive outlook to investors that the SA economy is growing. In his statement yesterday, the SARB governor confirmed the rand’s recent positive path against the Dollar could also be that the Rand is backed by the steadiness of commodities amid the Russian invasion.

We note two of the SARB’s MPC committee members opted for a 50bp hike which we could expect in the foreseeable future. The country’s GDP growth forecast was revised up to 1.9%, which is a cautious move keeping the GDP low to accommodate for load shedding and policy uncertainty. Core inflation forecast has increased to 4.2% this year from 3.8% which is expected as inflation remains a worldwide pandemic.

Abroad, US initial jobless claims has dropped to the lowest it has been since 1969 hitting a pandemic low as hiring strengthens. This is good for the US and the Dollar as it shows that more people are employed and can afford the cost of living.
The Dollar is currently stronger against emerging market currencies but is not a match for the Rand this week.

Technically:
The USD/ZAR pair continues to move in a bearish pattern welcoming the markets at R14.50/$ this morning. The Rand remains dominant against the greenback, if the rand really wants to push its limits, our next level could be R14.40/$ to R14.48/$. If the Dollar decides to make a comeback, the pair could see levels of R14.80/$ – R15.25/$ as a high. These are extremely good buying levels for importers.

The Euro continues to experience it’s lowest of lows last seen around Feb 2020, having dropped below R16.00/€. The fall of the Euro has persisted since the Russian inflation caused a lot of investors to move away from the currency. With the ECB deciding not to raise it’s interest hikes in their last meeting, stagnant inflation and the Russian-Ukraine war, the currency continues to stay in distress and suffer all the losses. The Eurozone has since fallen into a deep recession. We could expect them to hike their rates in the third quarter depending on how inflation behaves.

Russia opened it’s stock markets for the first time in a month allowing investors to participate in a highly restricted trading session however, they have banned short sales and the dumping of shares.

Technically,
We could see the EUR/ZAR pair continue to trade in a downward trend after already having touched slightly below R16.00/€. These levels were last seen in January 2020. If we break lower, our next level could be R15.95/€. The Rand remains persistent on staying dominant against the Euro. However, if the pair decide to take a turn, we could see R16/50€ as our next high.

The UK has seen vigorous PMI readings for this month with certain services sector showing improvement however the manufacturing numbers missed expectations.

With Global inflation, soaring prices and slowing economic growth, business expectations are now at it’s lowest. The UK has been heavily affected by the Russian invasion as they are suffering from the surge in gas prices and commodities. It is anticipated that inflation will soar to10% higher due to the spike in selling prices for goods. This has since resulted in the curb of GDP having decreased to 3.8% as well and caused a squeeze on economic households. This indicates to investors that the economy is not doing as well as expected hence resulting in a softer Pound.

Technically:
The Pound remains very volatile against the rand and we can see the GBP/ZAR pair trading in a downward trend. We can expect the pair to possibly be seen trading within the ranges of R19.05/£ – R19.50/£ in the coming week.