The Daily Forex Market Report

Good morning

There’s a feel-good WhatsApp doing the rounds that reminds us just how ridiculously strong South African rugby is at the moment.  We are the only country in history to be back-to-back world rugby champions, back-to-back sevens rugby champions and back-to-back junior world champions at the same time, and from my perspective we are only getting stronger!!!

These are the mid rates at 5:45 today:

Market News

• Unfortunately for the currency market the Dollar Index is only getting stronger at the moment, although looking at the Rand/Dollar exchange rate we seem to be fading this Dollar strength for some reason.  Long may that continue as with the greenback climbing for four consecutive trading days one would have thought we would be above R16.50 to the Dollar by now but we go into today’s session at R16.44. 
• In the absence of any US market data this week the market has been left to trade primarily on geopolitical headlines, and to a lesser extent what the FED might do or say at their monetary policy meeting next week.  On the Middle East front we have had to digest conflicting headlines but unfortunately the dominant force has been the escalation in tensions with the US carrying out their 11^th straight day of strikes on Iran last night while it was also confirmed that three US military personnel were killed over the weekend.  It would appear that the previously agreed ceasefire is well and truly over, and the Dollar Index has been a beneficiary as a safe haven asset. 
• The following is from an article on CNBC yesterday:  The US Dollar rose on Tuesday and was on track for a fourth straight ⁠session of gains, as the latest round of attacks in the Middle East sent oil prices higher and stoked concerns about persistent inflation. “We’re now on the tenth night of strikes in Iran, ​so the market is pricing things rationally here,” said Erik Bregar, director of FX and precious metals risk management at Silver Gold Bull in Toronto. “The FED is hawkish, I don’t think the marketplace fully appreciates that yet, and the longer this conflict goes on in the Middle East, the risks of the FED sounding even more hawkish increase.”
• The excerpt above talks to higher oil prices putting pressure on the FED to consider lifting US interest rates, or at least start to warn the market of imminent hikes, and things over recent days have become more precarious for oil as the Iranian backed Houthi rebels in Yemen have threatened to close the Red Sea to all shipping, a route that has become a much used alternative to the Strait of Hormuz.  Brent Crude just broke above $92/barrel as a result, a development that the FED will surely take into account when they meet next week, although chances of a hike in a few days’ time remain slim at just 17%. 
• But things are not all bad and we’ve heard of a joint effort by Pakistan and Qatar mediators tabling a proposed 10 day ceasefire so that the US and Iranian negotiators can get back to the table.  Prospects of a de-escalation, regardless of how remote, have been enough to cap the Dollar’s gains while analysts have pointed out that despite oil heading higher we are still far below the $112/barrel hit when the conflict started, and as such the market’s reaction has not been overdone.  Hopefully we get some good news soon and the pressure valve can be released, again. 
• On the local front all eyes will be on the SARB’s monetary policy announcement tomorrow afternoon and the jury is split on whether we’ll get another interest rate hike, or whether they’ll take a wait-and-see approach after lifting rates in May.  Hopefully the recent drop in petrol prices plus a resilient Rand are enough to keep the SARB on hold but some analysts are warning that the latest Middle East flareup could force the SARB into action.   
• Local market data today sees our latest CPI reading at 10:00 followed by retail sales at 1pm. 
• Possible USD mid rate trading ranges in the Rand today are R16.30 and R16.60.