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FXOne would like to thank Warrick Butler from Standard Bank for his valued contribution to the dose this morning.
Good morning
“Why is it that if you donate a kidney, people love you. But if you donate five kidneys, they call the police.”
Current USDZAR level: 16.5050/16.5150
Rand range yesterday: 16.4150-16.5200 and NY close: 16.4700
My “daily” commentary has been whittled down to barely a one-a-week piece these days as the market fluctuates between headlines and flows. There is an element of market exhaustion around Trump’s incredibly fickle nature and the quantum in price movement post a fresh headline has decreased over the past few weeks, but unfortunately the risk of something dramatic happening, remains. One needs to remain cognizant of this and thus weighting yourself on the back foot, is my preferred choice. A few weeks ago, I suggested that if the Rand strengthens too much, too quickly, the risk reward becomes skewed to future weakness and thus the opposite is also true. At 16.25/30 the chances of it moving below 16.00 were very low considering the man in charge in the US is a nutcase, but at the same time above 17.00 and further weakness would be tough to see unless the proverbial really hit the fan.
Well, we have now seen the Dollar pull back off its recent lows, with the Rand amongst those currencies struggling. This has also not been helped by some good recent outflows from the oil companies (dollarized payments increased almost 100% from a couple of months ago) and local asset managers have been adding to their prudential limits. This week we saw the local March CPI data which showed that price pressures were already evident in SA before the war even started and so this has caused a rethink of bond positioning locally. Chances of further rate cuts in SA this year, quickly being priced out. With oil back above $100/barrel again and the Iran war in limbo (although that can change quickly – or not), the longevity of high energy prices continues. The longer the price of oil remains above $85/barrel, the longer the global economy is going to struggle. Higher inflation mixed with low growth or even recession is not a great combo
One can just hope that the impending US mid-term elections and the negative impact on Trump’s favourable rating’s caused by this war will help push him to try and get a resolution quickly. If not, the Rand remains vulnerable to further weakness. My charts suggest that this is the case with both UST’s and SAGB’s pointing to higher rates over the coming weeks and so I am still short risky assets for now. With the Rand hovering at the 16.5200/55 resistance level, the next point of resistance is at 16.6500 which could well be touched today.
Good luck and have a great day ahead
Support levels – 16.30/27, 16.00/15.95, 15.8000, 15.6500, 15.5000
Resistance levels – 16.5200, 16.6500, 18.8000, 16.9400, 17.00/05, 17.2500
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