MARKET NEWS 17/06/2021

Good morning

The good news is that even though last night felt like a Sunday, and this morning feels like a Monday, we are actually only 2 days away from the next weekend!!! The bad news is the Rand is limping towards the weekend given that the US didn’t have the day off yesterday and risk assets like the Rand took a direct hit.  

These are the mid rates at 7:20 today:

USD = R14.00

AUD = R10.67

GBP = R19.57

DXY = 91.38

EUR = R16.78

Brent Crude = $73.57 per barrel

Market News

• “It’s all about the FED” has been the theme over the past week or so and last night we got what was feared. The Rand had been in a sideways drift around R13.75 to the Dollar since Friday with the currency market waiting for the FED, but that all changed with a plunge to R14.03 with further losses highly likely.
• In what is being labelled as a significant FED pivot they have gone from “not even thinking about thinking about” changes to monetary policy to Jerome Powell last night saying that “you can think of this meeting that we had as the ‘talking about talking about’ meeting.” While no actual changes to policy were forthcoming, with US overnight interest rates still at 0% and $120bn worth of assets being purchased monthly, the market was expecting no clear signals on future changes until the August or September FED meetings, and so last night came as a surprise and moved the dial. 
• The FED has to resemble a chameleon, slowly moving along a narrow branch with eyes swivelling in all directions trying to spot the multitude of risks and opportunities for the real and financial markets.  Their language last night confirmed that the risks are receding as they dropped the long held commentary on COVID posing the biggest risk to the US economy, and they replaced it with an acknowledgement that widespread vaccinations are contributing to a robust economic recovery. With risks abating the market is betting on cuts to their purchasing program as soon as this year which supported the Dollar.
• But the Dollar’s biggest catalyst came from a change in US interest rate projections. The March FED meeting assured us that interest rates would only start rising in 2024 but last night’s projections now see at least two 25 basis point hikes in 2023. This really caught the market off guard and sent the Dollar Index rocketing north to notch up its biggest daily gain since March 2020, and as a result the Rand was immediately pushed to R14.03.  
• The following is from Reuters and points to further Dollar strength:  The Dollar rose to its highest level in almost two months versus major peers on Thursday after the FED brought forward its projections for the first post-pandemic interest rate hikes into 2023, citing an improved health situation and dropping a long-standing reference that the crisis was weighing on the economy. “The FED’s super hawkish pivot should reinforce the lows and offer further near-term USD support,” TD Securities analysts wrote in a research note. “A double-whammy of higher rates and wobbly risk sentiment would result in positioning squeeze and the start of a new narrative possibly resulting in a 2% broad USD rally through the summer months.”
• Locally Cyril Ramaphosa moved SA to Alert Level 3 on Tuesday night as expected, and while tighter restrictions are never Rand positive fortunately they were not too restrictive which would have been Rand negative. Today we get May’s retail sales figures but the Rand will 100% be depended on the FED fallout over the next few sessions.  
• Local market data today sees our May retail sales print at 1pm.  
• Possible USD mid rate trading ranges in the Rand today are R13.80 and R14.10.