22 Jan

Daily Market Report 22 Jan

ZAR Strengthens Amid USD Weakness and Lower US Bond Yields

Key Developments

  • SA Economy:
    • Inflation: December CPI expected to rise slightly to 3.2% y/y, driven by higher fuel prices but still within the SARB’s target range.
    • Retail Sales: November retail sales expected to show +4.5% y/y growth, supported by consumer confidence, lower inflation, and interest rates.
    • Mining: Production fell -0.9% y/y in November, missing expectations, but resilient mineral sales highlight some sectoral strength.
    • Policy Sentiment: Positive tone at Davos, with a focus on fiscal reforms, private-sector inclusion, and progress on removing SA from the grey list.
  • US Developments:
    • President Trump announced a $500bn AI infrastructure investment while considering 10% tariffs on China, signaling an ambitious policy agenda that creates global market uncertainty.

Market Insight – FX

  • ZAR Performance:
    • Spot: 18.4950; Range: 18.40/6850.
    • The ZAR gained as the USD softened, helped by easing US Treasury yields and resilient gold prices (>$2,750/oz).
    • Optimism surrounding China’s GDP growth and reduced trade tensions supported the ZAR further.
  • USD Outlook:
    • The USD remains overvalued, but its direction hinges on Trump’s policy clarity and bond yield movements.

Market Insight – Fixed Income

  • SA Bonds:
    • Bond auction demand surged, with R16.42bn bids and clearing yields above 10%, attracting both local and foreign investors.
    • Easing US yields reduced pressure on SA bonds, but sustained foreign interest will depend on SARB’s cautious tone in next week’s MPC meeting.
  • US Treasuries:
    • Yields retreated amid uncertainty over Trump’s policies, easing inflation fears tied to potential tariffs. The 10-year yield fell to 4.54%, and the 2-year yield dropped to 4.228%.

Outlook

  • ZAR: Likely to consolidate gains if US Treasury yields remain subdued and global risk sentiment improves.
  • Policy Direction: Trump’s evolving stance on tariffs and fiscal reforms will shape market dynamics, while SARB’s inflation and interest rate guidance will influence local sentiment.
  • Economic Growth: SA’s renewed focus on reforms and infrastructure investment may bolster long-term growth if implementation proves effective.

 

Why Choose TreasuryONE?

Minimise the impact of market volatility on your bottom line by getting access to an experienced team of dealers that provides expert market advice – validated by facts and figures, not feelings or hearsay.

We customise risk management strategies to achieve the most competitive rates in a fast-moving and complex marketplace.

We provide effective and measurable processes for managing:

  • Exchange Rate Risk arises when an organisation conducts business in multiple currencies, either through exports and imports, or through foreign operations.
  • Commodity Price Risk is the financial risk posed to an entity’s financial performance and profitability by fluctuations in commodity prices that are primarily driven by external market forces and are therefore beyond the entity’s control.
  • Interest Rate Risk management for companies involves identifying, measuring, and managing the potential impact of changes in interest rates on a company’s financial position and profitability.