The dollar continued its gains last week off the back of stronger US CPI figures and FOMC meeting minutes hinting that rate cuts were delayed due to persistent inflation. The latest US CPI figures for March recorded a year-on-year CPI figure of 3.5%, up from 3.2% in February, and way above the Fed’s target rate of 2%. The other headlining event which strengthened the dollar even further was the ECB’s interest rate decision which saw the ECB keep rates unchanged at 4.50%. It was not so much the decision to keep rates unchanged that boosted the dollar but rather the tone from ECB officials which had a dovish tone as they discussed the probability of future rate cuts.
The broad-based dollar strength saw the Japanese Yen fold to its weakest levels against the dollar since 1990 after the USDJPY pair climbed above 153.00. The persistent dollar strength, the continued rise in US treasury yields and the recent resurgence of gold and oil prices are clear signals that cracks are appearing in the current global economic system. When all else fails, they take you to war and right on cue, tensions in the Middle East escalated over the weekend when Iran launched attacks on Israel. Renewed war will drive a fear trade which will strengthen safe haven assets as well as crude oil.
Looking at the week ahead, headlines will be dominated by the strikes in Israel. But, there isn’t much to look forward to in terms of data prints. Fed chair Jerome Powell will deliver a speech in the week after the latest US retail sales figures are released and China will update their latest GDP results for March. Locally, we have the latest SA CPI figures to look forward to for March and expectations are pointing to a year-on-year figure of 5.6% which is still way above the SARB’s mid-point range of 4.5%.
First up for the charts this week is the DXY which has gone from strength to strength in 2024. The DXY has appreciated more than 4% year to date, and the 2023 high of 107.35 is now firmly in the cross hairs. The dollar has nowhere to go but up given that rate cuts in June are in doubt and the continued global tension. The current fragile global economy may crumble under the strength of the dollar as it will cause foreign-denominated debt to skyrocket as well as create dollar liquidity shortages while the Fed holds rates at the current levels.
Brent crude oil pulled back from its highs last week but this looks like a bullish pullback. A move higher towards the 2023 high of $95 per barrel is inevitable.
There are rumours that the Shanghai Futures exchange has cornered the gold market. In response to recent trading price risks, the Shanghai Futures Exchange has implemented transaction limits on gold and copper futures. The move aims to regulate speculation and stabilize market conditions amid increasing volatility. Is the speculative precious metals derivative market finally unravelling, only time will tell. Technically, gold looks set for a pullback given the heavily overbought status of the RSI indicator.
The rand has been able to weather the storms of the broad-based stronger dollar thanks to the spike in precious metal prices however the rand did stumble at the back end of last week following the higher-than-expected US CPI print. The critical rates to watch on the USDZAR pair are the 61.8% Fibo rate of 18.97 and the 200-day MA rate of 18.75. I expect the 200-day MA to hold its ground given the renewed geopolitical uncertainties which will see the pair re-test the 18.97 resistance rate. A break above 18.97 will see the rand fold further towards 19.15.
