Old habits die hard and yesterday the currency market reverted to conventional behaviour.?When two regional banks in the US closed last week there was no safe haven rush to the Dollar, but when a 167 year old Swiss giant is on the ropes then the Dollar is the only place to be.??
These are the mid rates at 6:40 today:
Brent Crude = $74.00 per barrel
- The Ides of March struck again as the Rand took a direct hit just when it seemed like we had faded the banking crisis.?We opened the day at R18.10 to the Dollar and traded progressively weaker to hit R18.50 late on.??
- Whether these two banking crises are part of a wider story, or just a terrible coincidence in terms of timing, will only be revealed in months to come, but the reality right now is that two shuttered banks in the US are now being followed by Credit Suisse teetering on the brink only days later.?From what I can gather, the US bank closures were thanks to a combination of mismanagement plus pressure from a higher interest rate environment while Credit Suisse has lurched from scandal to scandal for many years, the latest being the admission of “weaknesses” in their financial reporting over 2021 and 2022.?The Credit Suisse share price has been steadily falling for over a decade, down 97% since 2009, but it chose this week to hit a new record low and join the wider “banks are in trouble” narrative.?
- The following is from CNBC:??The?Dollar?rose on Wednesday on safe-haven buying after Credit Suisse’s stock tumbled following the disclosure of “weaknesses” in its financial reporting that renewed investor concerns that a full-blown global banking crisis may be brewing. “The concern with Credit Suisse is whether or not this is going to turn into a full-blown global banking problem,” said?Bipan Rai,?North America?head of FX strategy at?CIBC Capital Markets?in?Toronto. “It really looks like central banks are caught between a rock and a hard place between tightening policy to address issues in the real economy and then, of course, the spill over effect is the fact that there’s a financial side to that.”
- Equities, and banks in particular, were in freefall yesterday while the Dollar Index shot north in a very risk-off environment, but fortunately tensions eased when the Swiss National Bank threw Credit Suisse a $54bn lifeline.?The bank still has a perilous path to walk in the next few days/weeks but the immediate threat of one of Europe’s oldest banks collapsing, and the undoubted contagion effects that would bring, has receded.?Also helping matters was a US producer inflation report that came in a lot lower than forecast and potentially signalling lower CPI down the line.??
- Bank headlines will dominate financial news outlets today but the Rand will be keeping an eye on what this all means for the FED’s monetary policy announcement next Wednesday, and so far things are looking more encouraging.?The FED is in a difficult place as they need to weigh up the need to keep fighting inflation with higher interest rates against the prospect of turning the screws on an already fragile banking sector.?It’s a tough call, but the market’s thinking is clear with bets that the FED would hike by 50bps sitting at 70% this time last week now being replaced with a 50/50 chance between no hike and a 25bps move.?If the FED relents and leaves rates unchanged then the Dollar will fall.??
- On the local front we had another surprisingly positive data release with our January retail sales figure forecast to fall by -1.0% month-on-month but the actual figure came in at 1.5%.?Consumer spend makes up around 60% of our GDP so this is a good start to fending off a technical recession in Q1 2023, but this news was lost on the Rand with international headlines dictating currency movements.??
- No local market data today but Brent Crude has nosedived to $74 a barrel after hovering in the $80’s for months, could this spell lower petrol prices???
- Possible USD mid rate trading ranges in the Rand today are R18.30 and R18.60.??