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Morning NOTE

5 January 2023


Summary :

  • The ZAR retraced its early 2023 gains on the back of more hawkish Fed minutes.
    • After strong gains towards 16.7700 in thin Wednesday trading. The local unit hitting 16.9500 after the Fed minutes.
      • Banks happy to collect stop loss orders in the absence of any meaning full data.
    • This reversed after the FED minutes.
      • The minutes showing the world’s largest central bank remains committed to brining inflation under control and is prepared to continue its hiking cycle.
      • The dollar recovered across the board after coming under pressure in the first 2 days of 2023.
  • This morning the Greenback higher after hawkish signals from the Fed showed that officials backed keeping policy restrictive.
    • FOMC members stating, this will be the case, until they see compelling evidence that inflation is trending lower toward the 2% target.
    • Fed officials also stated that a slower pace of rate hike in the last meeting should not be interpreted as a dovish pivot,
  • The market now turning attention to the first NFP report on Friday.
    • Expected is for a rise in 200k(very low in my estimation), any upside surprise could see some more Dollar gains.
  • However, next week’s inflation print likely to be lower and we expect a stronger ZAR heading into the Q1 of 2023.

Trade: Exporters can sell dollars above R17.00/$

  • This morning expect an early session pullback before more weakness into tomorrows NFP.
  • A break of 16.8500 targets yesterday’s low of 16.7700 before opening up 16.4000.

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