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Morning NOTE

13 April 2023


The ZAR weaker after Fed minutes showed the Fed will likely hike again to combat inflation.


The Rand endured another whippy session after conflicting US inflation data and the FED minutes.

  • Earlier in the session, US CPI surprised sharply to the downside. CPI printing at 5% vs 6% previous.
    • Risk assets rallied sharply only for it to reverse after the FOMC minutes showed the appetite for more rate hikes.
    • Even though members noted the likely hood of a banking crises that could cause a recession.
  • The ZAR reaching 18.2400 before losing ground to end the session above 18.4000.
  • BUT  Dollar however firmly on the backfoot especially vs the G7 majors.
    • Losing ground against the Pound. Euro and the Yen.
  • What’s holding the ZAR back?
    • Traders citing the disappointing economic data and the return to stage 6 load shedding knocking investor confidence.
    • And in the presence of a Fed still hiking, the ZAR will remain vulnerable.
    • However, this all changes the moment the Fed hits the pause button.

How does this happen?

  1. US Inflation continues to drop towards the target range.
  2. Banking woes causing a drop in lending affecting the real economy.
  3. Talks of a recession, as bank’s continue to see a drop in deposits and a drop off in lending.

Current levels continue to provide opportunities for Exporters to use both the Forwards and Options curves to hedge exposure and capture elevated rates.

  • Us10YT : 3.39%
  • DXY  : 101.500
  • Euro : 1.0980
  • SP500 : 4,105
  • USDZAR : 18.3800

Data This week

  • 08H00 : UK GDP MOM 0.1% EXPECTED  VS 0.3% PREVIOUS



Market Movement Today:

  • The Rand opening around the 18.3800 after another volatile session.
    • The local unit gained sharply following weaker than expected US CPI data.
      • CPI printing at 5% vs 5.2% expected and the previous 6%.
    • Risk assets spiked higher only to reverse after core surprised to the upside.
    • The mood also soured after FOMC  minutes showed members were concerned about a banking induced recession and still open to more hikes in 2023.
    • The recent economic data suggest a FED painted in a corner as the aggressive hiking cycle continues to bite the economy.
  • G7 currencies as well as Gold all sharply bid against the Dollar.
  • The ZAR relatively stable vs the Dollar but enduring a hammering vs Sterling and the Euro
    • The covid highs for euro was 22.8000 and  23.5000 for sterling.
    • Both appears on the cards as domestic factors weigh  on the local unit.
  • Traders will continue to cast an eye towards US monetary policy as it is the long term determinant of exchange rates,
    • But the local interbank FX traders starting to cite ESKOM as a serious problem given the sharp drop in manufacturing,
    • In addition SA about to enter stage 6 of loadshedding.
  • Thus with the threat of one more FED  rate hike, weighing on the ZAR.
  • NB: a pause by the FED reverses all this as the carry trade is just too large to ignore and will once again support the ZAR.
  • Trade : SELL USDZAR on Rallies.
  • Sell : 18.5500
  • Buy : 18.2500

Expected Ranges:

  • USDZAR : Expect a range 18.2900-18.5000
    • Importers : 18.3600-18.2900
    • Exporters : 18.4300-18.5000
  • EURZAR : Expect a range of 20.0800-20.3500
    • Importers : 20.1700-20.0800
    • Exporters : 20.2600-20.3500
  • GBPZAR : Expect a range of 22.8300-23.1300
    • Importers : 22.9300-22.8300
    • Exporters : 23.0300-23.1300


  • USDZAR 18.4000
  • EURZAR 20.2100
  • GBPZAR 22.9800



  • Power utility Eskom has implemented Stage 6 load shedding blackouts due to a shortage of generation capacity.
    • Eskom said it would be implementing Stage 6 load shedding from 4pm on Wednesday until 5am on Thursday.
  • Earlier, SA’s electricity minister called for more state funding and exemptions on emissions limits at coal-fired power plants to help ease the nation’s energy crisis.
    • The measures are among a raft of proposals he will submit to Ramaphosa’s cabinet this month to end daily blackouts that are hobbling Africa’s most industrialized economy.
    • According to Ramokgopa, debt-strapped Eskom doesn’t have the money to invest in its capital equipment, so it will have to seek funding elsewhere.


  • South African Independent Power Producers Association (Saippa), vowed fight Eskom up to the Constitutional Court.
    • The Industry association comes out in support of Free State town’s load reduction mitigation.
      • Said the SAIPPA , “…The position Eskom is taking by trying to stop the optimal use of power self-generation,
        • in the town of Frankfort in the Free State is typical of the ANC government’s centralist approach..”
    • SAIIPA said it will fight it, even if it requires going to the Constitutional Court.

Western Cape

  • South Africa’s biggest property owners are increasingly reducing their exposure to Gauteng and shifting their focus to the Western Cape.
  • This mirrors the entrenched trend to ‘semigration’ where those with the means have been steadily relocating to Cape Town or the Garden Route from other parts of the country.
  • One of the largest landlords in the country, Growthpoint, said last year already that the optimisation of its portfolio is
    • “designed to lighten our exposure to cities and provinces with less supportive business and property dynamics,
      • by reducing our Gauteng portfolio and investing more in the Western Cape and in KwaZulu-Natal (KZN), where total property returns have been better”.


  • On  Wednesday, the Dow declined  0.11%, the S&P 500 fell 0.41% and the Nasdaq dropped 0.85%.
    • 7 out of 11 S&P sectors finishing lower led to the downside by technology stocks.
  • US stock futures edged lower on Thursday after the FOMC minutes revealed several members were concerned that the recent banking turmoil would cause a recession.
    • Members however still signalling another interest rate hike in May.
    • Futures contracts tied to the three major indexes were all down about 0.1%
    • Earlier in the day, Wall Street initially rallied after data showed US consumer prices rose less than expected in March,
      • before reversing on fears that the Fed would raise interest rates further to bring down inflation despite heightened economic uncertainties
    • Investors now look ahead to US producer inflation and weekly jobless claims data on Thursday, as well as corporate earnings reports from major financial firms on Friday. REUTERS


  • The yield on the 10-year Treasury  recovered from early lows and hovered at the 3.45% mark on Wednesday.
  • It was  well above the seven-month low of 3.29% from April 6th as investors weighed on minutes from the Federal Reserve’s March meeting and fresh CPI data.
  • The FOMC agreed in raising the funds rate by 25bps despite previous calls for a more aggressive 50bps increase,
    • underscoring caution against overtightening following major bank closures in the United States that sent ripples throughout the global financial sector.
    • Still, policymakers showed a broad consensus that inflation remains too high, easing bets of three rate cuts this year.
    • Earlier in the session, data showed that US CPI rose by 5% in March, below market expectations of 5.2% and slowing from the 6% increase in the previous month.
    • On the other hand, the annual core inflation edged higher for the first time in six months. BLOOMBERG


  • The Dow was lower by 38 points to 33,646
  • The SP500 fell 16.9 points to 4,091
  • The Nasdaq declined 102 to 11,929

  image: Trading economics


The US Dollar

  • The dollar index steadied around 101.5, remaining close to its lowest levels since early February.
  • Investors assessed minutes from the latest Fed meeting for hints on future monetary policy decisions.
  • The FOMC considerably scaled back the expectations of aggressive rate hikes this year after major US bank closures stressed the global financial system.
  • The document also suggested policymakers were less determined for another rate hike in May to assess how elevated interest rates impact consumers.
  • Earlier in the session, fresh CPI data showed that inflation slowed more than expected in March, but an increase in annual core inflation kept dovish expectations in check.
  • Following the batch of new data, investors pared back bets of the Fed’s dovish pivot, but continued to price three rate cuts by the end of the year. FX NEWS

Asian markets

  • Asian equity markets mixed on Thursday, taking cues from a negative lead on Wall Street.
    • The FOMC minutes signalled that the Fed is still leaning toward another interest rate hike in May despite projecting a “mild recession” in the US later this year in the wake of the recent banking crisis.
    • Fears of a looming US recession also overshadowed softer-than-expected US inflation data.
    • Meanwhile, investors will be assessing a slew of economic reports in the Asia-Pacific region, including Australian unemployment and Chinese trade data.
      • Shares in Australia, Hong Kong and mainland China declined, while Japanese and South Korean stocks fluctuated.
  • In Japan, the Nikkei 225 up 0.05% to 28,096 following a weak session on Wall Street overnight.
    • The softer-than-expected US inflation data was offset by expectations that the Federal Reserve will raise interest rates further despite growing recession fears.
    • Those moves came a day after the benchmark indexes notched their fourth straight winning day as a weakening yen and dovish signals from the BOJ lifted Japanese assets. Reuters

Crude oil

  • US WTI crude oil prices steadied above $83/bl barrel, pausing its ascent as the Federal Reserve projected a “mild recession” in the US later this year due to the recent banking turmoil.
    • The comments stoking concerns about future oil demand.
    • The US oil benchmark still higher more  than 4% in the past two sessions on signs of tighter global oil supplies.
    • Moreover, the market shrugged off official data showing US crude inventories unexpectedly increased last week.
    • Investors now look ahead to the monthly reports from OPEC and IEA for further clues on demand and supply forces. Gulf energy news


  • Gold prices were trading higher around $2015/oz, remaining close to levels not seen since March 2022.
  • The yellow metal continues to scale new hights on the back of a weakening Dollar.
    • Bullion supported by a falling dollar as investors digest the latest US inflation report and FOMC minutes.
    • The headline inflation in the US eased to 5% compared to forecasts of 5.2% and the monthly rate increased by 0.1%, half the market expectations.
      • On the other hand, core inflation edged higher to 5.6%, but was in line with forecasts.
    • Meanwhile, FOMC minutes showed the Fed sees more policy firming as appropriate,
      • but some officials considered a pause in the tightening cycle in March due to the banking turmoil.
    • Most investors still see the Fed delivering a 25bps increase next month. Kitco metals

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