Welcome to this week’s Exchange4free ZAR Weekly Commentary
A week of ‘shockers’!
Man, you got to love South Africa! In a country where the actual cost of living is realistically increasing at around 12%+ p.a. the only words our economists can use to describe this weeks release of CPIX at 6.3% is ‘a shocker’. The only thing shocking is that these clowns are still employed and some moron’s actually believe anything that comes out of these okes mouths.
Sound a bit harsh? Maybe so but I’ve been ranting and raving about this issue now for ages and I’m really starting to get ticked off. Unfortunately I’m not the chief economist of an SA bank so am limited to my current audience via the famous ‘Weekly ZAR Report’ to air my views and haven’t had too many newspapers phoning me for my opinion on the SA economy and the ZAR.
Hey, I’m not saying the SA economy isn’t doing well but what I am saying is that there are underlying problems seeping into the SA economy that are going to put us on the back foot for the next few years. This underlying problem is inflation.
Official figures released this week are as follows: CPI 7%, CPIX 6.3% (above the SARB target range of 3-6% by the way), PPI 11% and Credit extension a whopping 25%
Okay so we all agree that even the ‘official’ figures are pretty high and it seems that everyone else thinks so too. These releases have been described as shocking and have even called into question the credibility of the SARB for letting CPIX exceed the 3-6% target band. Listen, anyone who thinks actual inflation is around 6% p.a. needs to have their head read but that’s for another time. What I will say at this point in time is this:
The SARB and all of their lackey’s (economists, analyst’s .etc) are blaming the high rate of inflation on the insatiable appetite of SA consumers to spend (as evidenced by the 25% credit growth numbers)
The question though needs to be asked if people are spending because they want to or because they need to.
Clearly the SARB thinks it’s because they want to and we’re all just a bunch of high rollers. I say, it’s blatantly obvious that people are spending because they need to.
Let’s look at this week with all the strikes over pay increases in SA. Are people striking because they want to drive a Mercedes instead of a Ford or are people striking because food has increased by 12-20% this year and that massive proposed salary increase of 6% just doesn’t cut it?
So you’re basically left with 2 solutions: Either cut down on your food intake or start eating ¼ of the food that you used to eat or strike! Simple as that.
So my argument is more along the lines of the fact that high credit growth is a result of people not being able to afford to live in SA than the result of pure excess and extravagance.
How do you survive in an environment where the real cost of living is increasing by 12%+ p.a. on a measly 6% p.a. salary increase? You live on credit – that’s how!
So anyway, just do drive my point home there was an article this week headed ‘Prepare for rising costs’. A quick read of this article makes it pretty clear that our inflation is comfortably above 6%. …..and just by the way the trade deficit doubled to R5.7 Billion and petrol prices are increasing next week by 23 cents a liter.
Right, so fundamentally the SA economy is looking stronger than ever! Only joking. So half of the picture (the fundamental picture) is clearly ZAR bearish. Let’s have a quick squizz at some technical indicators:
Nice big move weaker on the ZAR this week with USDZAR moving strongly up to a high around 7.23. The good news is that we’ve broken above several key levels indicating that we could be lining up a move higher within the major trend; the bad news is that USDZAR has moved from around 6.87 to 7.23 quite quickly and is maybe slightly overbought in the near term.
The strong up move though this week seems to have shifted the psychology of the market to one of ‘look for good levels to sell ZAR’. By this I mean that I would expect traders to be looking to buy USDZAR on any pullbacks towards the 7.07-7.10 levels.
Be careful of a break below 7.07 as this is once again the downside benchmark for the week and a break below this would put the medium term bull trend back in neutral territory.
As long as 7.07 hold on the downside then we should clear the 7.23 highs this coming week and push on towards 7.40
The fundamental picture is supportive of a weaker ZAR move so just need this 7.07 level to hold and to be on the lookout for real money players to come in and buy aggressively around the 7.07-7.10 level. If we don’t see these guys come in soon then we could see it falls back down towards the 7.00 level.
So keep an eye once again on our key levels which for this week are 7.07 and 7.23. A break of either of these levels shows us the way forward for the next week or so but at moment as long as we are above 7.07 then play the long side for a weaker ZAR.
Please do not hesitate to call if you need anything.
- FREE money transfers
- Great exchange rates
- No deposit fees at your receiving bank (up to R500)
- No hidden costs
- Zero commissions
- Registered money transfer agent
