What we know
We saw the South African Rand trade with a softer bias last week as it wrestled back and forth against the Greenback within a 46-cent range. Without sounding like a stuck record, it is again important to highlight that this weakness was imported as opposed to homegrown.
Equally, global markets appear to be finding it difficult to navigate away from a familiar script of cautious risk sentiment and what feels like an undecided global consensus on how much progress is being made in the Middle East. The Rand, as usual, didn’t need an invitation to underperform in this kind of environment, making it somewhat impressive to see the local currency holding its own during a time when historical equivalents would have pushed it back to much weaker levels.
The US Dollar Index (DXY) made further attempts to find its footing after a period of softness, stabilising rather than extending lower. Even a third assassination attempt on President Trump did little to move the markets or make a headline that wasn’t widely disputed by the global public.
Simultaneously, gold prices cooled slightly throughout the week before bulls stepped in to end the final day of the month, a move that was quickly undone as the first trading day of the new month commenced today.
Meanwhile, oil prices remained stubbornly firm and continue to pose the greatest risk to the fate of our local currency in the form of oil supply shocks and heightened local inflationary pressures. The longer this narrative continues, the more risk there is of markets being caught on the wrong side of initial risk perceptions at the start of the conflict. Said differently, markets are increasingly realising that “not getting worse” is not the same as “getting better.”
What others say
Moneyweb – New exchange control rules: ‘If they pass, we’re leaving SA’
“Adopting Bitcoin conference co-organiser Ricki Allardice takes a temperature reading of the room after publication of draft exchange control regulations … and it’s getting hot.“
Politico – We’re about to find out whether Trump is kingmaker or lame duck
“President Donald Trump’s power as the GOP’s kingmaker faces a major test with this month’s primaries. So far, he’s on rocky footing.“
What we think
The coming week is less about new headlines and more about whether existing ones gain momentum and/or credibility.
Markets are currently positioned in a way that favours USD strength or resilience as a safe-haven currency in uncertain environments. This means that even the most neutral data can keep the Dollar supported without merit, while risk-sensitive currencies like the Rand remain on the back foot and rely more heavily on local catalysts to strengthen.
From a data perspective, attention turns to a busy US economic calendar this week, with notable releases including, but not limited to, US inflation figures, Non-Farm Payrolls, and unemployment figures. As mentioned earlier, none of these releases need to surprise markets massively in order to move them, since global positioning has done most of the work.
From a commodity perspective, gold needs a catalyst to regain momentum. Without it, it risks drifting sideways for the foreseeable future, offering limited support to commodity exporters such as the Rand.
On a more positive note, local inflation is still well within the SARB’s target range and South Africa’s monetary policy remains relatively stable for now. The ultimate threat to our local economy continues to be stagnant GDP growth.
Our range for the week: R16.45 to R17.05..
Have a great week ahead.
