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Morning Wrap

8 August 2023

Good Morning

The ZAR weakened sharply ahead of US CPI and the SA holiday tomorrow.

Market Movement Today:

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

Markets this morning:

  • USDZAR 18.8000
  • DOLLAR 102.19
  • EURUSD 1.1000
  • SP500 4,506
  • GOLD  1933
  • US10YT 4.03%

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