The month of September comes to an end today, with the Rand losing ground by a full R1 to the Dollar compared to the beginning of the month. The dollar strength has been boosted by a hawkish FED paired with aggressive tightening of monetary policy.
U.S AND SA MARKETS
The month of September comes to an end today with the USDZAR scaling just above R18.00/$, great for the dollar, not great for the Rand. On the 27th of September 2022, consumer confidence in the U.S economy, which is a leading indicator that predicts consumer spending, increased by 4.25% for the month of September boosting dollar strength. U.S GDP data for the second quarter of this year shows that the U.S economy contracted by 0.6% which is another straight contraction this year which spells out a possible recession. Despite recession risks which remains high, the economy is noticing strength in the labour market, production and spending. Initial Jobless Claims for the week reduced from 209,000 to 193,000 citing a growing labour market, and we will see how next week’s Non-Farm Payroll’s pan out on the 7th of October 2022.
St. Louis FED President Jim Bullard hosted a speech on the 27th of September conveying how serious of a problem inflation is at the moment. Inflation was last this high in the late 1970s and early 1980s, and he further re-iterated that the FED has no option but to keep rates high and to aggressively tightening monetary policy. FED officials hosted a conference on the 28th of September 2022 to discuss the unique and important roles community banks play in the economy.
Locally, at the beginning of the week, some officials of the ruling party put some pressure on the President Cyril Ramaphosa to sort out the issues faced by Eskom if he wants any support in Gauteng. Eskom woes have continued this week with the nation placed under Stage 4 at the moment and this has played negatively for the South African Rand. The Public Enterprises Minister Pravin Gordhan announced this week that he will be restructuring and reconstituting the Eskom board in order to strengthen the board with bright experienced minds.
The USDZAR pair began the month with a monthly low of R17.00/$ and the rand has since lost ground by more than R1 against the dollar this month alone, with the pair testing a monthly high this week at R18.22/$. The pair continues to trade along a steep upward trend, and with the next interest rate decision for the FED and the SARB scheduled for November, traders/importers need to accept that the USDZAR may likely touch R18.50/$ in the next 2 weeks, then possibly retrace down to around R17.50/$ only if the R17.80/$ level is breached, before the next interest rates decisions are due. Yesterday the pair closed at R18.03/$ and we may likely trade between R17.80/$ and R18.27/$ next week
Low – R17.80/$
Support – R18.00/$
Possible High – R18.27/$ and should this level break, a possible R18.50/$
The Euro Zone had no market moving data this week but the week was filled with European Central Bank officials speeches that boosted the Euro-Rand from Wednesday. ECB President Christine Lagarde held a speech in Brussels on the 26th of September 2022 and she expressed ECB’s concerns about the red-hot inflation across the Euro area and the effects on Europeans as a whole.
A slowing economy is expected as high inflation is dampening consumer spending and production, riddled with sky rocketing energy prices. The ECB will continue to follow an aggressive monetary policy stance over the next several meetings to ensure that inflation remains anchored.
The EURZAR pair posted a weekly low of R17.20/EUR seen on the 27th of September 2022 and made a turn around on Wednesday, rising up to a weekly high of R17.72/EUR as seen yesterday. The pair opened the market today at R17.68/EUR and may likely test a daily low today of R17.50/EUR. Next the pair may likely trade between the range of R17.50/EUR and R18.00/EUR.
Low – R17.50/€
Support – R17.70/€
Possible High – R18.00/€
Much like the Euro, there has not been any market moving data this week, although this morning at 8:00am SAST, the UK’s second quarter GDP grew by 0.2% implying that the United Kingdom is not currently in a recession as predicted earlier this month. Yesterday, the Tory Chair of the Commons Treasury committee, Mel Stride urged Chancellor Kwarteng to publish new forecasts for the economy, and if any doubt is placed on Kwarteng’s mini budget, Kwarteng may be forced to consider a partial reversal on some tax cuts.
UK Prime Minster Lizz Truss and Chancellor Kwasi Kwarteng will be meeting soon with the Fiscal watchdog to reassure the UK market on the measures they will put in place to controlling debt.
The GBPZAR was extremely volatile this week, testing a 2 year low of R18.62/GBP last seen the 13th of January 2022. This spike to the downside was seen on Monday at 13:00 falling from R19.47/GBP down to R18.62/GBP after news about UK’s biggest tax cut in 50 years was announced, and quickly traded back up to R19.64/GBP in the next hour. The GBP has since re-gained strength against the Rand and tested at weekly high yesterday of R20.17/GBP. Today we open the market at R20.08/GBP and we may likely trade between R19.83/GBP and R20.30/GBP next week
Low – R19.83/£
Support – R20.10/£
High – R20.30/£