Rand Market Update

Good morning

Congratulations to the Springboks who emphatically sealed The Greatest Rivalry rugby tournament win on Saturday night.  The rest of the world are hoping that we are peaking too early ahead of next year’s Rugby World Cup but that’s probably not the case, we’re just getting stronger!!!

These are the mid rates at 5:40 today:

USD = R16.19	AUD = R11.57
GBP = R21.87	DXY = 99.30
EUR = R18.74	Brent Crude = $107.78 per barrel

Market News

• Unfortunately for the Rand, the Dollar is also getting stronger, with two sources of support pushing the greenback higher over recent sessions.  Friday afternoon saw our exchange rate slip from R16.02 to R16.22 to the Dollar in double quick time before we managed to close for the weekend at R16.12, but renewed Dollar strength this morning sees us start the week at R16.19, with the chances of further Rand losses looking highly likely.   
• Friday was all about the US consumer inflation report, and while the figures came in as expected, these expectations were for a higher reading in some areas of the report when compared to the month before, and this acceleration in CPI was yet another reason for the market to price in a FED interest rate hike this week.  While the year-on-year reading remained steady at 3.4%, well above the FED’s 2% target, the month-on-month figure climbed from 0.1% to 0.4%, so inflation is not easing. At the same time, the previous Friday’s jobs report came in strong; this all but guarantees an interest rate hike on Wednesday, which pushed the Dollar Index higher. 
• In the immediate aftermath of Friday’s CPI report, bets of a FED rate hike jumped from 67% to 87%, and those chances look set to inch even higher after developments in the Middle East have pushed the price of Brent Crude up to $107/barrel.  The headlines are not great with tankers in the Strait of Hormuz getting struck by missiles, Iranian backed Houthi rebels in Yemen ramping up their attacks in the hope of taking control of Red Sea bound oil shipments and Saudi Arabia having to halt oil flows through their overland pipeline due to Iranian drone attacks.  Tensions in the region remain elevated, oil is up as a result and so is the Dollar. 
• The following is from Reuters and unpacks why the FED appears to be backed into a corner when it comes to their interest rate decision, a situation that is Dollar positive:  “Energy inflation does not stay at the gas station. It travels by ⁠truck, airplane and cargo ship into nearly every store in America,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University. “The FED is now more likely than not to raise its policy rate, it cannot afford to let an energy ​shock become an everything shock.”
• Middle East headlines will be important this week, but central bank activity definitely takes centre stage as we have the FED (Wednesday), the Bank of England (Thursday) and the Bank of Japan (Friday).  The FED, according to the market, will lift interest rates on Wednesday, but it’s Chair Kevin Warsh’s language that will be more important as the market looks for clues around this being the start of a hiking cycle, or more of a “one and done” scenario.  The BoE isn’t expected to hike, but the BoJ is also expected not only to hike but also expected to signal additional hikes this year.  The currency market is in for an interesting time later this week!!!  
• No local market data today.
• Possible USD mid-rate trading range in the Rand today is R16.00 to R16.30.

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