The budget speech last week served no surprises and the government will now officially enter the coffers of the SARB to help carry some of the governments ballooning debt load as roughly R150 billion will be made available from the SARB’s Gold and Foreign Exchange Contingency Reserve Account (GFECRA). The news was not well received by the markets since the rand slid from R18.75/$, on Wednesday, to a weekly close of R19.29/$ while the broad based dollar index recorded its first weekly decline for the year.
Internationally the headlining event last week was the FOMC meeting minutes which leaned towards a more hawkish Fed stance. FOMC members noted the risks of moving too soon to ease their current policy stance given that US inflation is not yet sustainably down to 2%. On paper there is no reason to start cutting rates, the major US indices are trading at all-time highs, US economic data is holding its ground supporting the notion that the US has avoided a recession and US inflation is still well above the 2% target. As rate cut expectations fell last week, US treasury yields rose notably with the US 10-year yield touching December high at 4.35%.
The week ahead is quiet in terms of data prints but the headlining events have the potential to stir up some volatile market swings. The US GDP results for the 4Q2023 is expected to show a growth figure of 3.3%, down from 4.9% in 3Q2023 and the US PCE price index for January is expected to ease to 2.4%. Weaker than expected US GDP results coupled with a softer than expected PCE print will support a risk-on environment and vice versa.
The first chart for the week is our ailing rand. The rand had a tough week at the office following the budget speech which saw the USD/ZAR pair touch a 4-month high of 19.40. The pair is now testing the downward blue trend line which forms the blue wedge pattern in place since 2Q2023. A break above this trend line would see the rand fold to 19.63 and possibly higher towards the all-time highs of 19.94. The fact that the rand failed to hold the pair below the 61.8% Fibo rate of 18.97 is technically rand negative and on top of that the 50-day MA has crossed above the 200-day MA. The only scope for a rand recovery is if the dollar depreciates significantly off the back of early rate cuts from the Fed or if precious metals go on a raging bull rally. Until then it seems as if the rand will remain on the ropes. The daily RSI still has room to move higher before hitting overbought zones which is not rand supportive.
The DXY recorded its first weekly loss for the year last week as the major red downward trendline and the 61.8 Fibo retracement rate of 104.80 held its ground. The DXY is currently sitting on the 200-day MA level of 103.73 and it will most likely test levels below this rate this week with the US GDP and US PCE prints on the schedule for this week. A failed break below the 50-day MA level of 103.15 could see the DXY break above the red downward trend line followed by a move higher towards 103.35.
Just to highlight the risk-on environment, the S&P 500 and the Nasdaq recorded fresh all-time highs last week. Again, is it necessary for the Fed to cut rates given the strong performance in US indices as of late? There is however strong divergence on the RSI which could be an early sign for a pull back on to the 50-day MA of $4,850.
