TOTSIENS LEKKER DAG (Afrikaans) or translated into English, GOODBYE HAVE A NICE DAY. What am I talking about, USDZAR.
Absolutely battered and splattered. Making new lows every day as President Zuma’s shock announcement on Wednesday (fired the Finance Minister) continues to plague the ZAR. A coffee in London will now set a S.African visitor R67 (R23 back home) while a steak at Gaucho Grill will set them back R705 (the cost of a meal for 4 back home). That gives you an idea how expensive it is now for anyone travelling from SA to the UK (not to mention US and EUR). I guess the FM’s and SARB’s CRAZY decision to hike rates a couple weeks ago did nothing to stop the rout. In fact it has made it worse! We all have our own opinions about what constitutes the right time to hike rates, but the SARB hiking rates in my opinion (and in the opinion of MANY bankers in SA) was simply barmy to say the least. The ZAR deval was doing its bit to prop up the economy (> export earnings & > import costs). The strange thing is, as you know SA biggest trading partner is the EU and therefore a strengthening EUR normally generally gives the ZAR a boost. The opposite has now happened and the recent EUR strength and actually seen the ZAR weaken further forcing EURZAR, GBPZAR and USDZAR to new ZAR lows. The new FM is an unknown which has led to a flight to safety by foreign investors and which has seen SA bonds trading at their weakest levels since the start of the global recession. It continues to amaze me in this day and age how politicians continue to make the strangest decisions. This is S. Africa after all, quite possibly the most investor friendly country in Africa. Last point on SA, your steak at a top local restaurant costs under £6.00 – and a meal for 4 including copious amounts of wine will set you back between £30-£40…happy days for those heading to SA for the summer 🙂
Staying in Africa, Nigeria’s NGN weakened further in the parallel market on Thursday, down 0.60% after the central bank’s exclusion of some bureaux de change operators from its USD sale on Wednesday created a shortage of dollars.
Strange price action in the EURUSD. The USD got sold off aggressively post ECB announcement on the 3rd December. It managed to claw back some of those “losses” at the beginning of the week but has since encountered resistance forcing the currency back up to over 1.0950 – as a conspiracy theorist and in my humble opinion I think the Central Banks are colluding by forcing the EUR higher. The reason, simple, ahead of the FED’s much anticipated rate hike next Wednesday and the potential USD rally (you would think) post announcement the CB’s are probably thinking its better to buy the USD at these inflated levels than at 1.0450 and risk breaking Parity. Whether or not we have seen the high of the USD for the year remains to be seen, and on the face of it I think we just might have. The cat is out the bag, the market knows what’s coming next week so confirmation of the fact should see a muted response to the hike. The only caveat and where we will see volatility is if the FED do nothing. Then we off to the races!!
EURGBP continues to trade at the week’s lows after the EUR rally. The currency weakened on the back of the EUR rally rather than the GBP weakness. I for one am not expecting this short term EUR strength to last much longer post FED/FOMC meeting next week and expect the GBP to enter another bull phase vs the EUR then.
Have a good weekend
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