Forex Market Report

19 May 2022

The world is awash with expensive things that we buy which have a question mark over their real world application; think invisible statues (one sold for $18 300 in 2021) and cartoon drawings of a rock. Adidas and Gucci have teamed up to enter the scene with their stylish umbrella priced at R20 000, but the umbrella comes with a warning that it is not waterproof.

These are the mid rates at 06:25 today:

Market News

• Yesterday, risk assets, and equities in particular, needed to take shelter as yet another violent wave of selling swept the market. The Rand was not spared and fortunately our damage wasn’t too bad, as we opened at R15.94 to the Dollar, bounced around the R15.90 mark until the US market opened at 3:30pm, and then fell to R16.09.
• After Tuesday’s ‘big up day’, risk-off sentiment returned in full force yesterday as choppy trade in risk assets remains entrenched. A multitude of factors contributed to the Rand’s rise on Tuesday, including stellar earnings from Home Depot, and positive news on both the COVID and regulatory fronts out of China. Jerome Powell’s comments that the FED will “do what it takes to tame inflation” did little to ruin the fun, but it now appears that there was just a delayed reaction which kicked in yesterday in a big way. 
• Powell made it clear that the FED will hike US interest rates aggressively in an attempt to gain back credibility in their fight against inflation. This was glossed over by the market to a certain degree on Tuesday, but yesterday the poor earnings report from US retail giants, Target and Lowe’s, which along with downbeat US housing data, gave sentiment a 180 degree turn. Fears of constrained growth, thanks to higher interest rates, came roaring back with equites taking a direct hit, while the Dollar pushed higher as a safe-haven asset. Powell has repeatedly said that the FED is trying to engineer a “soft landing” where economic growth is lowered to cool inflation while a recession is avoided, but recessionary fears are escalating. 
• The following is from Reuters: Safe-haven currencies, including the dollar, eased on Thursday, pausing for breath after big gains the previous session as Wall Street stocks tumbled amid mounting concerns that aggressive tightening by the FED and other global central banks could choke growth. Powell’s stance “makes it hard to achieve a ‘soft landing’ for the US economy given the long lags between changes in monetary policy and changes in inflation,” Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney, wrote in a client note. “The darkening outlook for the US economy supports the USD and safe-haven currencies.”
• Yesterday, we finally had some local market data for the week and it was interesting to see that April’s consumer inflation print came in unchanged at 5.9%, this despite the price of fuel being up 29% in the last 12 months and food prices continue to ramp up. At 5.9, CPI is still inside the SARB’s upper target of 6%, albeit only just, and the spotlight now falls on SARB governor, Lesetja Kganyago this afternoon and his monetary policy announcement.
• Local market data today sees our interest rate announcement at 3pm. 
• Possible USD mid-rate trading ranges in the Rand today are R15.85 and R16.15.  

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