These are the mid rates at 6:20 today:

USD = R18.22 AUD = R12.40
GBP = R23.30 DXY = 102.49
EUR = R19.90Brent Crude = $76.03 per barrel

Last week Jerome Powell and the FED did their best to scare the market with the threat of further interest rate hikes coming down the pipeline.  Fortunately for the Rand the market is not so sure as we keep chipping away at a move to R18.00 and below.

SA might have been on holiday last Friday, and the US market was closed yesterday, but that hasn’t stopped the Rand from notching up gains.  We managed to hit R18.13 to the Dollar on Friday as the intra-day best level, a feat we briefly repeated yesterday morning, and in a relatively quiet week on the data front there are a few events that could help us challenge the R18.00 barrier.  

Taking a quick look at last week the Rand definitely didn’t take Friday off as it powered to R18.13, the best rate since late April and bringing us back to levels well before the Lady R and excessive load shedding headlines sent the Rand reeling in May.  With the Dollar Index on the back foot thanks to the FED pausing their hiking cycle last Wednesday followed by the weekly US jobless claims release on Thursday coming in higher than expected, that was music to the Rand’s ears.  Also helping us was the ECB hiking European interest rates by 25bps on Thursday while advising that they’re not done yet, and a stronger Euro would have weighed on the Dollar.  

Yesterday was a US public holiday and so it wasn’t a surprise to see the currency market trade sideways with the Rand holding steady just below R18.20 for most of the day.  But looking ahead we definitely have a couple of risk events which could help the Rand while FED Chair Jerome Powell will probably do his best to ruin the party.  First comes our inflation reading tomorrow with forecasts suggesting a fall from 6.8% to 6.4%, a move that our Reserve Bank would love to see.  Ordinarily lower inflation rates are currency negative but at our last policy meeting Lesetja Kganyago actually hurt the Rand with a 50bps hike while confirming we are now into restrictive territory that curtails economic activity, so it will be interesting to see how the market reacts as we get closer to the SARB’s 6% target.  

The following is from Business Day and suggests we could hit the SARB’s 6% inflation target very soon:  “Headline inflation will possibly return within the Bank’s inflation target range by the middle of this year,” Sanlam Investments economist Patrick Buthelezi said. “Overall, headline inflation is slowing, reflecting declining fuel prices, eased supply chain pressures, peaking food inflation, weak economic growth and the implementation of a restrictive monetary policy by the Bank.”

With the FED and the ECB both holding policy meetings last week attention now turns to the Bank of England this Thursday and they are widely expected to lift interest rates again by 25bps while also signalling that they are not done yet.  We now find ourselves in a divergent moment where the FED has paused while their main counterparts are still hiking and this has the potential to push the Dollar Index lower, at least that is what the Rand is hoping for!!  With inflation in the UK proving particularly sticky there are some analysts saying that the BoE will have to take rates from 4.5% currently to over 6%, a level they haven’t seen since 2000, and the Pound has been moving higher against the Dollar as a result.  

The week does have its risks though, chief amongst these being Jerome Powell’s two day congressional testimony which starts on Wednesday.  With the FED not hiking rates last week Powell will no doubt try to sound as hawkish as possible when it comes to the need for further hikes this year and the Dollar could find support depending on how convincing he is.  

Chinese President Xi Jinping met with U.S. Secretary of State Antony Blinken at the Great Hall of the People on Monday. Noting that the world is developing and the times are changing, Xi said the world needs a generally stable China-U.S. relationship, and whether the two countries can find the right way to get along bears on the future and destiny of humanity. Xi pointed out that the vast expanse of the Earth is big enough to accommodate the respective development and common prosperity of China and the United States. The Chinese, like the Americans, are dignified, confident and self-reliant people, Xi said.

Local market data today sees our leading business cycle indicator at 9:00. Possible USD mid rate trading ranges in the Rand today are R18.05 and R18.35.