overview

The Rand began the week on a strong note until markets dumped emerging currencies after Russia launched the biggest attack on a European state since WWII.
Long term risk is set to remain pressuring market sentiment until the conflict is resolved, which isn’t expected to occur soon.

The week saw dollar-rand poised to close below R15.00/$ and give way to lows around R14.90/$ and open the possibility to R14.70/$.
Markets this week saw a sharp contrast and turn-around in events, rand sentiment was influenced by the below:

Factors that were on course to improve rand strength:

• A responsible and balanced national budget speech along with better than expected PPI data in January were setting up the rand for further gains, until global panic flipped risk appetite on it’s head.
• Gold reaching record highs created a support for the rand to establish firm ground and push lower technical levels.

Factors which altered the Rand’s course and are impeding ZAR strength:

• Russia attacking Ukraine caused emerging currencies to be dropped and the US Dollar once again became the safe haven of choice for investors, giving the dollar support to push USDZAR higher.
• Fitch rating agency’s comments on the national budget speech were short of inspiring. Pointing to concern over the states inability to consolidate if revenue falls short or more economic risk’s appear. Fitch noted that more durable solutions to boost the economy are needed and so far the government’s plans are insufficient to make this outcome believable.
• Sustainability questions over Eskom, off the back of a new electricity hike of 9.61% and a revenue shortfall.

While world leaders stick to sanctions, markets will monitor the situation in the East and react moderately to event updates. However, if President Biden commands any deployment of forces in to support Ukraine then market relief will fall away as whenever the US has gone to war, the dollar strengthens drastically.

What to expect in upcoming events:

• Biden is to speak on Ukraine-Russia at 2pm – markets will be watching to see what course of action will be up next from the US.
• US GDP and job data later today – should data be strong, then the dollar further cement an upward move.
• Sanctions – as sanctions increase, ripple effects will reach Asia and commodities and will continue to show in market’s price action.

Technically:
USDZAR had broken below our long running channel but now has returned inside the upward channel as dollar strength persists. Having opened at around R15.30/$, gives indication that we will range higher around dollar-rand between R15.20/$ – R15.60/$ for the coming week. Long term, as the Russia-Ukraine conflict continues and if events worsen then we a range of R15.00/$ – R16.20/$ may come into play for coming months. Buys between R15.00/$ – R15.20/$ should be considered good buys for importers.

The European currency is in the shadow of the safe haven dollar and may weaken as the Eastern Europe conflict worsens.
While other majors have seen a noticeable rise against the rand, the euro has gained but not as substantially. The euro is struggling to recover form loss of ground and touched lows against the dollar after the Russian attacks.

With the conflict at hand, the European Central Bank (ECB) has stated that the situation may result in their plans to halt stimulus measures to be slowed and an exit from such monetary tools to be delayed.

Technically:
EURZAR has remained relatively stable with not much movement up or down, remaining below R17.20/€. A range of R17.00/€ – R17.20/€ has been consistent for 2 weeks and breaking above current levels will see the pair likely test R17.30/€ followed by R17.42/€.

Prime Minister Boris Johnson has followed suit of many world leaders by stating that the UK will pressure Russia from the world economy with sanctions against large Russian banks and oligarchs of the nation.
The PM revealed to the House of Commons that they would unleash “the largest and most severe package of economic sanctions that Russia has ever seen”, calling President Putin a “bloodstained aggressor”.

Furthermore, fears over the health of Queen Elizabeth II continue to pile after Her Majesty continues to battle with Covid-19. The queen has cancelled several engagements and updates on her state of health remains relevant for the pound.

Technically:
GBPZAR has been erratic with the pound being influenced by global events and also turmoil locally with Boris Johnson still being frowned upon by rival parties and UK citizens. The GBPZAR pair remains above R20.35/£ and has failed to break this level since Nov 2021. The pair will likely continue to range between R20.45/£ – R20.80/£ in coming days with levels on the lower end of that range considered good buys – keeping in mind we saw over R21 on GBPZAR just 2 weeks ago.

Technical level we are watching for next week: