The South African rand appreciated on Tuesday, according to Reuters, as investors prepared for a deluge of data releases later in the week.
The South African currency rose.
The rand was 0.4% firmer than its previous finish, trading at 18.5100 to the dollar at 10:20 GMT. Analysts had a hard time identifying a domestic explanation, although they did note that a drop in U.S. Treasury yields from their highs the week before had helped the risk-sensitive rand.
According to Danny Greeff of ETM Analytics, the Federal Reserve’s intentions for interest rates “could be affected by U.S. labor market data scheduled for release in the coming days,” therefore it remains to be seen if the current upbeat market sentiment can be maintained. Currently, “the rand is merely a passenger to the movements of the U.S. Treasuries and the dollar,” he continued.
Also see: 30 August 2023’s list of the world’s wealthiest South Africans.
On Wednesday, the South African Central Bank will announce the country’s money supply, private sector credit, and budget figures for July. On Thursday, the Central Bank will reveal July’s producer inflation and trade figures. Insight into the state of Africa’s most industrialized economy at the start of the third quarter can be gained from such numbers. The blue-chip Top-40 index on the Johannesburg Stock Exchange ended trading roughly 0.2% down. The benchmark 2030 U.S. dollar issued by the South African government also declined, sending the yield up 4.5 basis points to 10.205%.
Reuters: On Wednesday, the U.S. dollar recovered from its steep losses from the previous day as investors awaited additional data on the labor market for hints on the future course of Federal Reserve policy. The dollar index, which tracks the greenback’s value in relation to a basket of six major currencies such as the yen and the euro, gained 0.09% as of the Asian afternoon, trading at 103.64. After a drop in JOLTS job postings to a 2-1/2 year low prompted traders to pare bets for more U.S. rate hikes on Tuesday, the index sank 0.39%, its weakest day in a month and a half.
“I’d expect USD bears to pounce on the back of any data which backs up the JOLTS jobs report,” said Matt Simpson, a market analyst at City Index. “With traders now sensitive to weaker U.S. data in hopes of the Fed’s peak rate, I’d expect USD bulls to pounce on the back of any data which backs up the JOLTS jobs report.” While this is encouraging news that yields and the U.S. dollar have reached a new high, we advise caution because it came in response to secondary employment data and there is much more data to come out this week, including the monthly non-farm payrolls report on Friday.
SEE ALSO: Who is the world’s wealthiest person right now? List of the Top 10 on August 30, 2023
On Tuesday, the yield on the two-year U.S. Treasury note fell as low as 4.871% before rising to roughly 4.91% during Asian trading hours. This yield is particularly sensitive to market participants’ predictions for future Federal Reserve policy.The 10-year yield rose from its low of 4.1106 percent on August 11 to 4.1354% on Tuesday. The USDJPY pair increased to 146.205 from 146.185. Prior to the release of the JOLTS report on Tuesday, it had risen to a 10-month high of 147.375, but by the day’s conclusion, it had fallen by 0.45%.
The Japanese government intervened in the currency market last autumn for the first time in a generation due to the high levels. Naoki Tamura, a member of the Bank of Japan’s board of directors, stressed on Wednesday that the central bank is carefully monitoring the consequences of a weak yen on the economy. After gaining 0.56 percent overnight, the euro dipped 0.18 percent to $1.0860. While odds for a rate hike at the next meeting in November are close to 50/50, money market traders presently give 86.5% odds for the Fed to maintain rates constant on September 20.
In light of recent strong statistics, investors have increased their hawkish Fed wagers. On Friday, Federal Reserve Chair Jerome Powell suggested that additional tightening would be necessary to bring down inflation, which is still too high. However, he also committed to go cautiously. Inflation in Australia fell to a 17-month low in July, providing more support for the Reserve Bank of Australia to maintain current interest rate policies at its upcoming policy meeting. Initially falling by as much as 0.46 percent in response to the data, the Australian dollar has now recovered to trade flat at $0.64775.
In addition, you may read 30 August 2023 editions of newspapers from all across the world here.
Offshore, the Chinese yuan fell to 7.3002 per dollar, but this was still above its low point on August 17 of 7.3490. Every day since the middle of the month, the People’s Bank of China has set the official mid-point for onshore trade at 7.1816, or 1,000 pips higher than the Reuters estimate. After soaring more than $2,000 the previous day to a nearly two-week high at $28,142, bitcoin fell 0.94 percent to $27,465.
After a court order that would allow for the first-ever spot Bitcoin exchange traded fund, investors rushed to buy the top cryptocurrency. It had been hovering about $26,000 for the previous week and a half. “There is still work needed to get a full green light to roll out a spot ETF, but we’re certainly a step closer,” Chris Weston, head of research at Pepperstone, wrote in a client note, adding that the price might head to $29,200. Before more information is released, “shorts will be concerned with holding exposures.”
One Pound Sterling
Reuters: On Tuesday, the pound edged higher versus the dollar and the euro as investors awaited comments from Bank of England Chief Economist Huw Pill later this week. As of 1000 GMT, the value of one pound has risen to $1.2614, a 0.10 percent increase. It strengthened versus the euro by 0.13 percent, bringing the exchange rate to 85.75 pence for one euro. The previous day, it had fallen to its lowest level against the euro in two weeks. Today, the pound’s price action appears to mirror that of other pro-cyclical currencies. Francesco Pesole, an FX strategist at ING, noted that while there isn’t a lot of UK data due this week, there is a lot of non-UK data due later in the week.
Experts argue South Africa is too dependent on social grants; see also.
Trader optimism about the world economy was reflected in the increased prices of equities and other currencies including the Australian dollar on Tuesday. According to Pesole, who anticipates higher-than-anticipated inflation data for the eurozone this week, the pound will perform better against the dollar than the euro this week. Investors anticipate a rate hike of 25 basis points from the Bank of England at its upcoming meeting on September 21.
The Bank of England (BoE) hiked interest rates again on August 3 to try to slow inflation after raising them 14 times since late 2021. Deputy Governor Ben Broadbent of the Bank of England indicated over the weekend that British interest rates may need to continue high “for some time yet,” prompting South African Reserve Bank to invite Pill to speak at their biennial conference on Thursday morning.
FX market analyst at Monex Nicholas Rees said, “Coming on the back of Broadbent’s statements at Jackson Hole, Pill may well choose to echo the idea of a ‘high for longer narrative,’ which should be sterling supportive in isolation.” He was referring to a closely monitored swap curve that reflected rate expectations when he added, “We don’t think this will lead GBPUSD back above 1.27 on its own, mainly because the recent string of UK data suggests the ‘higher’ level is below the terminal rate priced into GBP OIS.” The value of the pound has decreased by 1.7% against the dollar this month.
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International Trade
Reuters: Weak U.S. labor data encouraged predictions that the Federal Reserve was likely done with its interest rate hikes, sending Asian shares higher and the dollar tumbling on Wednesday, while downtrodden China stocks climbed for a third consecutive day. The MSCI All-Country Asia ex-Japan Share Price Index gained 0.86 percent, reaching a two-week high and continuing a three-day winning streak. August has been the weakest month for the index since February, down 6% thus far. The S&P/ASX 200 index in Australia increased by 0.64%, while the Nikkei in Japan gained 0.5%.
A lowering of the stock trading stamp tax, loosened margin loan restrictions, and a temporary halt to new listings were all announced this week in an effort to boost investor confidence, and these moves have helped China’s stock market this week. The Hang Seng Index in Hong Kong was up 0.75 percent at the start of trading, while the blue-chip CSI 300 Index was up 0.3 percent. But analysts believe the rally needs more intervention from Chinese officials if it is to continue. For the rally to continue, “more resolute policy measures and a sustainable recovery in earnings” are necessary, according to Carlos Casanova, senior economist for Asia at UBP.
This week’s PMI data from China will be closely watched by investors because it will provide a snapshot of the country’s economic climate. Following data showing that U.S. job vacancies fell to the lowest level in over 2-1/2 years in July, signaling easing labour market pressures, the stock market closed significantly higher overnight, as Treasury rates plunged to three-week lows. Tina Teng, markets analyst at CMC Markets, wrote in a note, “‘Bad news is good news,’ as the data supported bets for a sooner end to the Fed’s hiking cycle.”
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Since the Fed has stressed the importance of data in determining the future course of interest rates, investors are adjusting their wagers accordingly. According to the CME FedWatch tool, the markets currently price in an 89% chance of the Fed keeping rates steady at its meeting in October, and a 50% chance of another pause at the meeting in November, up from 38% a day earlier. Later in the week, when figures on U.S. payrolls and personal consumption expenditures are due, a far clearer economic picture is likely to emerge.
U.S. Treasury yields were unmoved during the Asian trading day. The yield on the two-year U.S. Treasury note rose 1.3 basis points to 4.903% on Thursday, pulling back from a three-week low of 4.871% reached on Tuesday. The falling yields put downward pressure on the otherwise strong dollar.
After falling by roughly 0.4% against a basket of currencies on Tuesday, the dollar inched up to 103.58 today.
The Japanese yen fell by 0.15 percent to 146.09 per dollar, maintaining a level that prompted government intervention in the currency market late last year. After statistics revealed that consumer price inflation in Australia slowed to a 17-month low in July, sending a warning that interest rates might not have to rise again, the Australian dollar slipped 0.32% to $0.646. Both U.S. crude (at $81.42) and Brent (at $85.69, an increase of 0.23%) are up from their previous closes. On Tuesday, as the currency weakened, both benchmarks gained more over a dollar a barrel.
What happened on August 30? Find out by reading “On This Day in South Africa.”
Released on August 30, 2023, by the Mercury Group.
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