Core retail sales boosted the Dollar this week among with comments made by Fed officials. The data released this week boosted investors’ confidence in the Dollar and gave the greenback strength against its peers in the markets.
U.S AND SA MARKETS
The U.S released their core retail sales this week and resulted in a rather bullish Dollar. Core Retail sales were better than expected, readings were at 0.9% and the July reading expectations were expected to drop to -0.1%. Surprisingly in July, core retail sales rose by 0.4% beating expectations. Despite the figures being lower than previously reported, it beating expectations gave investors confidence in the Dollar
The Fed released the minutes of their last meeting this week and indicated that the Fed will need to keep hiking interest rates to keep inflation at bay. This was pleasing to investors and in return further boosted the Dollar. Fed officials sentiments are mixed, there is 40% chance of 75 basis point hike in September and a 60% chance of a 50 basis point hike. Esther George, Fed President from Kansas City said that the Fed will not stop tightening monetary policy until they are completely convinced that inflation is easing.
Initial Jobless Claims data was released yesterday, and it was forecasted that the initial jobless claims would rise this week from 252,000 to 265,000, but instead only rose by 250,000 which is 2000 less unemployment claims compared to the previous week. This is good for the dollar, and is what contributed to USD rising by 28 cents yesterday
Locally, Agriculture Minister Thoko Didiza placed a 21 day ban on the movement of cattle, as South African cattle farms have now been riddled by fast spreading Foot and Mouth Disease.
The Price of crude oil has continued to reduce and now stands at $88. Due to this, it is expected that petrol and diesel prices are set reduce as well. It is estimated that there will be a decrease of R2.60 per liter for 95 unleaded, a decrease of R2.45 per liter for 93 unleaded and a decrease of R2.30 per liter for diesel.
This week Dollar bulls have been dominant against the Rand since Monday. The pair was at the bottom of the upward channel on Monday trading at a support level of R16.19/$ and has since bounced off this level and hit a high of R16.95/$ early this morning. The USD/ZAR had a low of R16.63/$ and this is now our new major support level. Today we may likely see the pair trade between a low of R16.80/$ to a possible high of R17.00/$. Should the pair break right through the R17.00/$ mark next week, we may see a weekly high of R17.15/$ next week.
The Euro Zone released their Year-On-Year inflation data yesterday and the consumer price index increased from 8.6% to 8.9% as expected, which has been the highest CPI reading since the Euro was created, and this boosted Euro strength against the Rand. As the inflation is not cooling at all, European Central Bank members are highly likely going to vote for another large interest rate hike in September. Isabel Schnabel, who is a member of the ECB has renewed inflation worries overnight by expressing that consumer prices could continue to increase in the short-term.
The on-going tensions between Russian and Ukraine continue to batter Euro Zone growth. An EU ban on coal from Russia is still due to come into effect this month and the demand for Russian gas is set to reduce by two-thirds this year.
The Euro has gained strenght against the Rand as well, taking back all the losses from the previous week. EUR/ZAR had a weekly low of R16.58/€ and is currently trading at a weekly high of R17.07/€ . On Wednesday, the pair broke through the resistance trendline at R16.88/€ and did not re-test this level. As it stands, the next level of resistance is R17.20/€ which may be seen either this afternoon or next week. The pair may likely trade between a low of R16.99/€ and R17.20/€ today.
The UK released their year-on-year inflation data as well on Wednesday, increasing from 9.4% to 10.1%, beating expectations of 9.8%. This increase in inflation is due to the surging food prices and cost of living. These readings will place a lot of pressure on the Bank of England and they will have no choice but to deliver another aggressive interest rate hike at their next meeting.
Signs are becoming clearer that the U.K is heading into a recession by the end of this year. Another factor that has boosted Sterling strength against the Rand is better than expected core retail sales readings in the U.K released this morning which rose by 0.3%. With the price of fuel slightly reducing, consumers spent more on online shopping which picked up retail sales.
The Pound Sterling has had a bullish week this week, and just like the Euro, the Sterling has made back its losses from the previous week. The pair bounced up from a level of support at R19.60/£ on Monday and has since risen to a weekly high currently standing of R20..18/£ . An inverted head and shoulders pattern was painted by the GBPZAR on the 4HR chart which is a bullish reversal pattern. Today we may likely see a low of R20.11/£ and a possible high of R20.24/£