Morning Wrap

The ZAR  weakened nearly 2.5% to reach 18.8300 in early trading.

• The local unit is under pressure as traders unwind long ZAR positions ahead of the US CPI report.
• As has been the case recently, whenever we have a SA holiday, it appears to create a liquidity vacuum, resulting in ZAR weakness or sharp gains.
• Either way, range volatility increases dramatically.
• Traders hedging ahead of tomorrow’s August 9th holiday also placing pressure on the ZAR.

However, the key data remains US CPI on Thursday.

• It will likely set the next directional leg for the Dollar.  
  • US inflation expected at 3.3% YOY vs 3% previous.
    • Analysts citing a removal of the base effects as well an increase in energy and food prices.
    • A higher number will likely send the Dollar higher, removing any chances of a Fed pause/cut later in the year.
    • If any it would support further Fed hikes.
       
• We expect the ZAR to remain under pressure with a risk of further weakening if US inflation prints higher.
• Trade:  BUY USDZAR on DIPS