The good news is that my lawn is green and lush!!! The bad news is that it’s raining…. again…. with more rain forecast. So far spring is proving to be a very damp transition into summer.
There’s gloomy skies for the Rand as well I’m afraid as one of our sources of support on Monday fizzled out yesterday. We opened at R14.70 to the Dollar with an eye on further gains but after a brief move to R14.66 it was one way traffic from there as we fell to R14.86.
There are many drivers of price action for the Rand and unfortunately each line item can be either a positive or a negative influence on our currency. On Monday rising precious metals’ prices were a tailwind for the Rand but that boost was short lived as yesterday both the precious metals and base metals complexes went into reverse and pulled the Rand down with them. Of course, this just one factor, and is not our primary diver of price action, but it didn’t help our cause.
Another factor that had been a positive in recent days turned against us yesterday. Worsening sentiment in the Chinese property sector gave us a brief reprieve last week when Evergrande made an $83.5bn bond payment to avoid officially falling into default, and in so doing supporting risk assets. But with Evergrande’s debt pile still at staggering levels it has emerged that another Chinese property developer, Modern Land, is not the second nor the third, but in fact the fourth property company heading towards default. As you would expect this has soured the mood somewhat and is weighing on the Rand.
The following is from Business Day: The Rand weakened against major currencies on Tuesday, pulled lower by precious and base-metals’ prices as another Chinese property developer defaulted on a debt obligation. The property sector accounts for about 29% of China’s GDP, while the country is the world’s largest consumer of base metals, taking up about 10% of SA’s total exports. “News of debt repayment default by another property developer in China suggests contagion from the Evergrande situation,” said IG senior market analyst Shaun Murison. “The news has invoked fear around slowing growth in China and in turn demand for commodities, which is reflected in metal prices and the Rand.”
Yet another factor counting against the Rand was Eskom ramping up their load shedding schedule which was originally planned for night time power cuts until 5am on Wednesday but has now been shifted to around the clock cuts until Saturday morning, at Stage 2 for now. As always, the negative impacts on our economic productivity as a result of this power shortage pulls through to the Rand.
Fortunately, in all of this the Dollar Index has drifted sideways and not compounded our problems, this as the market waits for imminent central bank policy announcements. The following is from Reuters: Analysts said the Dollar might continue to hold steady pending a slew of central bank meetings and economic data that could shift views on interest rates, inflation and growth rates. “The markets are just pausing right now,” said Joseph Trevisani, senior analyst at FXStreet.com. The Bank of Canada meets on Wednesday and the European Central Bank and Bank of Japan convene on Thursday. Next week brings meetings of the US Federal Reserve, Bank of England, Reserve Bank of Australia and Norway’s Norges Bank.
No local market data today.
Possible USD mid-rate trading ranges in the Rand today are R14.65 and R14.95.
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