Forex Market Report

Yesterday, the Dalai Lama along with 100 other Nobel Laureates wrote an open letter to world leaders asking for an end to the expansion of the oil, gas and coal industries. Additionally came the approval of an oil drilling project off SA’s West Coast which is likely to unlock 349 million barrels of recoverable oil. I guess there is a long way to go before some middle ground can be found on this issue. 

Market News

• The Rand continued to drift in a rather narrow trading range yesterday, as we opened at R14.33 to the Dollar, and gradually strengthened to R14.23 before slipping slightly to this morning’s open at R14.27. As things stand, we are exactly where we opened this week, and indications suggest that these muted movements will remain in place for at least a few days.    
• Yesterday, our stronger move was thanks to a combination of local and international developments, with SA’s consumer inflation staying anchored at the bottom of the SARB’s target range, whilst the Dollar Index slid towards the 91-point barrier. Our CPI came in at 3.2% and has hovered around the 3% level for over a year now, while core inflation (which excludes price movements in food, non-alcoholic drinks, fuel and electricity), fell from 2.6% to 2.5%. With inflation proving sticky at these levels, which gives the Reserve Bank no reason to change our interest rate while supporting our economic recovery, and with SA’s carry trade advantage of 4.7% this puts us at the top of the emerging market pile. This has seen international demand for Rand-based assets which has pushed us stronger.   
• The Rand was also a beneficiary of a falling Dollar Index (DXY), as the Canadian central bank surprised the market in announcing a planned tightening of their monetary policy in 2022, which includes hiking their interest rate. The Canadian Dollar is a component of DXY, and with their Dollar gaining by 1% on the day against their US counterpart, this pushed DXY lower and helped the Rand post gains against the US Dollar. Ultra-loose central bank policy has been the norm since COVID struck, but with the Canadians breaking ranks based on their economy and not being as badly impacted as first feared, this could signal others following suit, and would mean fun and games for the currency market. 
• For now, however, it seems that the major central banks will maintain the status quo, and the following extract from Reuters suggests limited currency movements over the next week: The FED’s Open Market Committee meets next week and the European Central Bank decides policy on Thursday. Though neither is expected to signal a change in policy now, traders may hold back from big bets for a few days, said Joseph Manimbo, senior market analyst at Western Union Business Solutions. “I think the market is just going to play it carefully in case the FED changes its tune,” Manimbo said. At the moment he sees the market acting as though it is at “somewhat of a crossroads for the Dollar given that it has struggled this month.”
• While the above point talks to limited Dollar movements, the following extract from CNBC suggests that the Rand could have a difficult time against the Euro today: The Euro is in focus ahead of a European Central Bank (ECB) meeting later on Thursday, where any positive comments about the economic outlook or hints of tapering bond purchases are expected to send the common currency racing higher. Dutch central banker Klaas Knot has already said tapering is possible, and the Euro could resume its rise against the Dollar on any signs that a reduction in bond purchases is gaining more support within the ECB, analysts said.
• Local market data today sees our producer inflation print at 11:30.     
• Possible USD mid-rate trading ranges in the Rand today are R14.10 and R14.40.  

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