Rand & SAGBs Tumble Amid Hawkish SARB Repricing, Energy Crisis & Econ Data Amplify Headwinds

USD/ZAR (last seen at ZAR19.2699) rallied as high as to ZAR19.3257 before losing steam and stabilising, even as participants continue to add hawkish SARB bets. Anecdotal evidence suggests that sell-side desks have been shifting their calls for next week's rate decision towards another 50bp hike. South Africa's FRA curve has moved higher today, which is most evident further out the curve, as participants push back their expectations of the interest-rate cycle peak.

• Goldman Sachs wrote in a research note that "the SARB finds itself having to tighten policy further into a weakening economy, given uncertainly high inflation." As a result, they see a "risk that monetary tightening will weaken the economy further, thereby creating a feedback loop for the rand." They warned that "the risk of overtightening in the face of FX pressure is real and could ultimately undermine the SARB's monetary policy response."
• From a cross-asset perspective, local-currency bonds have tumbled across the curve, extending morning losses. Further woes for the local FI space could be linked to a lacklustre debt auction yesterday, with bond outflows accelerating as non-residents sold ZAR4.1bn of SAGBs, according to the JSE's settled trades data.
• The rand cannot count on support from local data or headline flow today. EE Business Intelligence flagged that Koeberg reactors will be shut for additional maintenance next year, while South Africa's retail sales contracted by 1.6% Y/Y in March, which missed the projections of all economists polled by Bloomberg.