What we know
Last week, the Rand performed relatively well until a strong jobs figure from the US disrupted trading, causing the Rand to weaken by 30 cents in the few hours following the data release.
Over the last fortnight, the Rand has performed remarkably well despite continued geopolitical uncertainty. Ultimately, however, as Dollar strength kicked in at the tail end of last week’s trading, the Rand could not hold on to its recent gains. The US employment data surprised significantly to the upside, doubling the expected figure with 172,000 jobs added to the payroll. With a third consecutive month of strong data, the Dollar used this momentum to move back above 100 on the Dollar Index (DXY), showing that this shift was based on Dollar strength rather than pure Rand weakness.
Adding to that, with the news of fresh strikes being traded between Iran and Israel, ZAR trading took a further knock as markets reopened after the weekend. Oil prices gapped up $2 per barrel to commence this week’s trading session in response to the news.
What others say
Reuters – Iran rejects idea of using its assets to pay damages to US allies
“Iran’s assets were “neither war spoils for Washington nor a payment fund for its allies.“
Daily Maverick – Fitch lifts SA’s credit rating, citing ‘prudent fiscal management’
“Fitch Ratings gave South Africa its first upgrade in more than 20 years, raising its long-term foreign and local currency ratings by one notch to BB from BB- while keeping its outlook stable.“
Politico – Why Britain and America Can’t Stop Firing Their Leaders
“In both countries, political revolts keep toppling leaders without solving the deeper crisis.“
What we think
Last week we said, “The Rand has benefited significantly from the Dollar’s inability to regain sustained short-term momentum, but this support remains fragile in the absence of credible developments out of the Middle East. That remains the single biggest risk facing emerging market currencies this month.”
As we have seen, this support was fragile and crumbled as soon as the Dollar found a reason to improve. The US has seemed reluctant to rejoin the combat and requested that Israel not retaliate against the strike from Iran. Markets will remain volatile as this conflict continues, but the US seems to still be aiming for a resolution.
In the week that lies ahead, inflation figures from the US will be watched closely by the market ahead of the US interest rate decision the following week. This is the first rate decision since Warsh took over as the Fed Chair, and the market will be eager to see the outcome of this first rate decision under new leadership.
We also expect a rate increase from the ECB this week as they try to curb inflation, which is rising on the back of increased energy costs due to the sustained conflict in the Middle East.
Our range for the week: R16.40 to R16.75.
Have a great week ahead.
