The first month flew by and who said that 2021 would be the same as 2020. While the central market themes the US dollar and any news on the COVID vaccine are still the same, some new elements have entered the market over the last couple of weeks. Before we delve into the new players, let’s first have a recap of what is happening in the market by looking at the long term drivers.
We’ve seen the US dollar trading like a yo-yo for the most part of last week, but in saying that it stayed true to the 1.2000/1.2150 range. We expect the longer-term play for the US dollar to be one of weakness as the Fed’s mantra of lower for longer will again start to impact the US dollar negatively in the longer term. We still need to determine the exact size of the US stimulus and how it will be funded, but we expect this to be Dollar negative and possibly a boon to EM currencies.
The second longer-term driver has been the COVID pandemic and the roll-out of the vaccines. The equation is simple; the quicker the vaccine is rolled out, the more it will benefit riskier assets. We have seen the US going on a massive drive of 100 million vaccines in 100 days. News around this matter could be susceptible to markets and should any delay happen we could see a return to “risk-off” markets.
A new short-term issue that popped up in the last week or so has been the retail-trading causing high volatility in some stocks and silver. While we have not seen the same effect as of yet in the FX market, it is good to keep an eye on this development as this could be a reasonable fear gauge for the market. If markets rally it could be “risk-on” but should there be a fall out we could be in for a rough ride.
What does this all mean for the Rand though? We have seen the Rand trading, much like the US dollar, erratically but in pre-defined ranges. The current range for the Rand is R14.9000/R15.4000. In the short term, we could expect the Rand to test the R15.0000 handle again with the amount of “risk-on” sentiment in the market and a weaker US dollar. However, things become interesting when we take a few steps back and look further along the line. The lack of COVID vaccine procurement, the budget speech and the spiralling debt of South Africa will be a cause of great concern in the medium and longer-term and something to keep an eye on.
This week’s two things to look out for are the US non-farm payroll number out on Friday and the current retail investor volatility. The last US non-farm payroll number did not have a massive impact, but it could again come into significance should the number miss the mark by a margin. The current rollercoaster in the retail investor market could continue, and it is only a matter of time before it starts impacting other sectors and could be the driver that is needed for the FX market to break out of the current ranges.