Risk appetite is gradually returning to the market after the global “risk-off” scenario due to the COVID-19 pandemic, and it can be attributed to the advances made in COVID-19 vaccines and economies slowly opening up. The result is a weaker UD dollar as investors move out of the US and into different asset classes.
The US dollar is currently trading near the 1.17 mark against the Euro and is under pressure as it seems that the market players are hedging their bets between “risk-on” and “risk-off” assets. We have seen EM currencies on the front foot, but on the other hand, we have seen Gold jumping above the $1900 per ounce. Gold reached an all-time high on Monday morning trading at $1944 per ounce. The dichotomy between these two opposing forces might result in bumpy trading for EM currencies at least, however, within ranges going forward.
The Rand traded within a 50 cent range last week, as the Rand threatened to breach the R16.30 level against the US dollar in the early part of the week only to sag out a little and touch R16.80 on Friday. We believe that this is the broader trading range for the Rand for the week as the battle between “risk-on” and “risk-off” is set to continue.
On Thursday we expect 2nd Quarter GDP numbers out of the US and initial jobless claims. The impact of their shutdown will be reflected in the GDP number, and we could expect some market action. The initial jobless claims number have fallen to the back of the queue in terms of the importance of late but is still relevant should the number come out as disastrous.
However, the main drivers of the markets this week will continue to be the COVID-19 stats, the increase in cases and the US-China soap opera that has started again. Apart from the COVID virus, the two countries are at loggerheads due to espionage and intellectual property theft, to name a few.
On the South African front, the most significant data release will be the trade balance on Friday. The number will be skewed due to the lockdown restrictions currently in South Africa and will not affect the Rand. Our view for the Rand this week is that the currency is now in a “risk-on”, “risk-off” tug-o-war and that the Rand will be volatile but in a set range of R16.30 – R16.80.