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Morning NOTE

5 July 2023


The ZAR continued its advance on the back of weaker than expected US economic data.


The Rand continued to seek out gains in thin trading conditions due to the 4 July, US holiday celebrations.

  • The local unit reaching targeting 18.6000 before reversing ahead of tonight’s FOMC minutes.
  • The minutes once again providing insight into the minds of the FOMC voting members as well as the path and  the trajectory for future interest rates.
  • Recall, that a strong majority of policymakers expect two or more rate hikes by the end of the year.
    • Members citing that the process of getting inflation back down to 2% has a long way to go, with Powell echoing those sentiments.
    • Since early last year, the Fed has raised the policy rate by 5 percentage points, but it will take time for the full effects to be realized, especially on inflation.
    • The Fed left the target for the funds rate unchanged at 5%-5.25% in June but signalled rates may go to 5.6% by year-end if the economy and inflation do not slow down more.
  • After the FOMC decision, Fed Chair has reinforced several times the need to raise rates further this year.
  • At the ECB Forum, Powell said he wouldn’t take consecutive-meeting rate hikes off the table. source: Federal Reserve
  • The benchmark 10YT continues to trade around the 3.85% yield, with some commentators indicating 4.6% is on the cards if inflation does not reach 2%.
    • All of this keeping rates elevated and the Dollar pinned around the 103 level.
    • The buck’s direction to come from a raft of economic data this week, including the FOMC  minutes as well as the jewel in the crown ( for volatility),
    • i.e. the highly unpredictable NON FARM PAYROLLS, expected at +225k jobs and the unemployment rare at 3.7% (unchanged).
    • Any difference likely to set the tone for the next month of Dollar directional bias.
  • Earlier this morning SA PMI data reported by STATS SA showed an increase to 48.70 from 47.90 
    • BUT… below 50 indicates a contraction in the sector

Data This week





  • 14H30 : US NON FARM PAYROLLS expected +225K VS +339K PREVIOUS

Market Movement Today:

  • The Rand drifted strong in low volume trading on Tuesday, due to the US holiday.
  • The local unit testing the 18.6000 level.
  • Interbank traders taking advantage of order books and filling clients as well as triggering weak stop losses.
  • Today, we await the all-important FOMC minutes for more clues on the direction of interest rates.

    • Recall, after the FOMC decision, Fed Chair has reinforced several times the need to raise rates further this year.
    • At the ECB Forum, Powell said he wouldn’t take consecutive-meeting rate hikes off the table. source: Federal Reserve
  • The benchmark 10YT continues to trade around the 3.85% yield.
  • Central bank hawks as well as the IMF calling for higher rates to combat inflation.
  • Some commentators indicating 10y’s need to rise to 4.6% if inflation does not reach 2%.
    • All of this  keeping rates elevated and the Dollar pinned around the 103 level.

Risk remains, FED MINUTES and Friday’s jobs report

  • Trade : BUY USDZAR on dips (i.e. SELL ZAR)

Markets this morning

  • USDZAR 18.6700
  • DOLLAR 103
  • EURUSD 1.0900
  • SP500 4,448
  • GOLD  1923
  • US10YT 3.86%

Expected Ranges:

  • USDZAR : Expect a range 18.5300-18.8300
    • Importers : 18.6300-18.5300
    • Exporters : 18.7300-18.8300
  • EURZAR : Expect a range of 20.1700-20.4700
    • Importers : 20.2700-20.1700
    • Exporters : 20.3700-20.4700
  • GBPZAR : Expect a range of 23.5800-23.8800
    • Importers : 23.6800-23.5800
    • Exporters : 23.7800-23.8800


  • USDZAR : 18.6700
  • EURZAR : 20.3400
  • GBPZAR : 23.7400



  • SARB governor Kganyago, says that expects SA inflation to fall inside range by Q3.
  • Speaking at an event in Johannesburg, Kganyago said inflation had been steadily trending down, reaching 6.3% in May after peaking at 7.8% in July 2022.
  • He said, ‘My team is expecting that inflation will decline to within the target range either in the second quarter or at the latest in the third quarter,’ said Kganyago.
  • South Africa’s inflation is expected to decline to within the central bank’s target range of 3% to 6% by the third quarter.
    • It will be sooner than previously forecasted, governor Lesetja Kganyago said on Tuesday.
    • At its last meeting in May, the Sarb monetary policy committee surprised the market by implementing a 50 basis point increase to its interest rate.
    • It was the 10th consecutive rate hike since November 2021 as the bank battled to bring down stubbornly high inflation.| Source Money web


  • Johannesburg residents should store water two days before the Rand Water’s planned interruption next week.
  • Joburg Water said the shutdown will accommodate upgrades to Rand Water’s Eikenhof pump station.
  • It will take around five days for the water system to recover after it is switched back on Thursday. 
  • Johannesburg Water has requested that its customers start storing water from Sunday to accommodate the planned Rand Water shutdown from 11 July to 13 July.| Source NEWS24


Stocks drifting lower ahead of tonight’s FOMC minutes release.

  • After the US independence day holiday on Tuesday, US stock futures moved lower on Wednesday, as trading resumes in a holiday-shortened week.
  • Recall, that markets were closed on Tuesday for the Fourth of July holiday and closed early on Monday.
  • The major averages notched gains during Monday’s session which kicked off the start of a new month, quarter and half-year for the market.
  • The Nasdaq Composite climbed 0.21%, the S&P 500 rose 0.12% and the Dow inched up 0.03%, with nine out of the 11 S&P sectors finishing higher.
  • Investors now look ahead to the latest Federal Reserve policy meeting minutes on Wednesday for more clues on the path for interest rates. Source CNBC

Bond yields cautiously higher ahead of tonight’s FOMC minutes release.

  • The yield on the US 10-year Treasury rose above 3.8% to 3.86%, on the first trading day of the second half of the year.
  • Although concerns about the economy continue to linger, traders citing the payrolls report, JOLTS and ISM Services PMI as key drivers this week.
  • In addition, minutes from the latest FOMC meeting on Wednesday will be keenly watched for further clues on the Fed’s next steps.
  • Last week, Chair Powell reinforcing that interest rates will continue to rise this year.
  • Traders are currently assigning a nearly 87% chance the Fed will raise the fed funds rate by 25bps next month.
  • Early on Monday, the gap between the 2-year and the 10-year Treasury yields hit -109.5 bps, the widest since 1981. Source : Reuters


  • DOW 34,418
  • SP500 4,455
  • NASDAQ 13,816

**Closed for USA Independence Day .
image: Trading economics


Asian markets
Eastern markets trading lower after the US holiday with eyes squarely on the FOMC minutes tonight.

  • In Japan, the Nikkei 225 Index fell 0.25% to close at 33,339.
    • The index sliding for the second straight session as investors remained cautious while awaiting fresh market cues.
    • Investors also digested data showing Japanese services activity stayed expansionary in June but logged the slowest growth in four months.
    • Notable losses were seen from index heavyweights such as Mitsubishi UFJ (-1.4%), Tokyo Electron (-0.4%).
  • In Australia, the ASX 200 Index fell 0.35% to close at 7,253 on Wednesday.
  • The index ending  a three-day advance, with financial stocks leading the decline as heightened economic uncertainties weighed on investor sentiment.
    • On Tuesday, the RBA kept its cash rate steady as the board said it needed more time to assess the impact of past hikes.
    • Markets were priced for a 25 bps hike.  
    • Losses in the financial sector were led by Commonwealth Bank (-0.3%), ANZ Group (-1.1%).
    • Energy firms also declined, including Woodside Energy (-0.6%). Source : Trading economics

Oil prices remain well bid after more production cuts from major producers.

  • US WTI crude futures remained steady around the $71/bl level, after giving back some gains from the previous session.
    • Traders citing a highly uncertain outlook for the global economy and future energy demand outweighed the prospect of tighter supply.
    • Supply a concern due to output cuts by top exporters Saudi Arabia and Russia.
    • A raft of business surveys pointed to weakening manufacturing activity in major economies, clouding the outlook for energy demand.
  • Expectations that major central banks including the FED and the ECB will raise interest rates further to bring down inflation also dented market sentiment.


  • Meanwhile, Saudi Arabia announced earlier this week that it would extend its voluntary cut of one million barrels per day to August and could prolong it further.
    • The country will now produce about 9 million barrels a day, the lowest in several years.
    • Russia also said it will lower its oil exports by 500,000 bpd in August, with production set to fall by the same amount. Source: GULF NEWS

Precious metals holding onto recent gains ahead of tonight’s FOMC minutes.

  • Gold trading around its recent pivot level of $1,920/oz, remaining sideways so far this week as investors awaited the US Federal Reserve’s June policy meeting minutes for more clues on the path for interest rates.
  • Latest data showed that US manufacturing contracted further in June to the lowest reading in nearly three years.
  • Data released Friday also showed that US inflation slowed and consumer spending decelerated sharply in May.
  • Still, Fed Chair Jerome Powell indicated last week that further rate increases are likely ahead as it will take time to bring inflation back down to the 2% target.
  • Markets are priced for a nearly 90% chance that the central bank will hike rates by 25 basis points in its July meeting. Source : Kitco

Forex markets continues to range trade ahead of the Fed’s FOMC minutes release tonight.

  • The US dollar index was little changed around 103.1 on Wednesday.
  • The Greenback trading sideways, as traders remained braced for the latest Federal Reserve policy meeting minutes for more clues on the path for US interest rates.
  • Markets are currently betting that the central bank will deliver another 25 basis point rate hike this month.
  • Fed Chair Jerome Powell said that further rate increases are likely ahead as it will take time to bring inflation back down to the 2% target.
  • Meanwhile, ISM data released on Tuesday showed that US manufacturing activity for June contracted the most since May 2020 amid weakening demand.
  • Investors now look ahead to the key monthly NONFARMS report, JOLTS (Job openings) and ISM Services PMI data later this week for further clues on the economy. Source : Forexnews

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