Foreign Exchange Commentary – 2 July 2021

Rand Morning Briefing: Pressure mounts

Bottom line: The rand is under renewed pressure but moves will be determined by this afternoon’s US non-farm payrolls figure for June. Trade starts at 14.48.

  • After the Fed surprised, I asked: Is the strongest ZAR behind us?
  • Many said yes; I still think no, but doubts are growing
  • EM currencies are under pressure, rand tracks with the pack
  • Yesterday’s June US ISM survey showed economic strength
  • But it also showed increasing inflationary pressure
  • Worrying, as inflation pressures were supposed to be “transitory”
  • Inflation should still fall off, but the waiting is getting on nerves
  • Dollar only a little stronger but EM currencies reacted very badly
  • ISM the catalyst; fuel partly concerns over long Covid in EM
  • Rand “pullback” is now close to the biggest this cycle
  • All eyes on US payrolls (14:30): consensus is for 720k job creation
  • A strong figure would imply ZAR weakness
  • With ZAR and EM on edge, large moves are possible
  • SA rates trade higher in line with USD/ZAR
  • Early week foreign inflows haven’t sustained
  • FRA’s now pricing 2+ hikes of 25bp by SARB before year-end
  • That’s the most aggressive pricing we’ve seen this cycle
  • Question: Will the rand keep falling if the SARB doesn’t hike soon?
  • SA Covid: cases rocketing but Gauteng shows signs of decelerating
  • OPEC meeting failed to come to an agreement; resumes today

US ISM survey: Confidence is high, but price pressures are huge

 

Source: RMB Markets