Another strong but volatile week for the Rand

The Rand has strung together another good week, despite some huge volatility...

More relief for importers and consumers, with the hopes of cheaper goods and fuel.

It was a see-saw week, with trade wars, positive news and negatives news...

...plenty enough to keep everyone on their toes.

While we could have asked for a little more stability from the local currency, the fact that it ended strong than it started was enough for most!

With plenty to review, please do join us...

Our outlook on Friday indicated there was only one direction for the Dollar/Rand right now - down. With the market trading at R13.4616, the target area was R13.30-13.08 - some more relief if the Rand could hit that area.

USDZAR_STU Click to enlarge

It was a week packed with events. Here are a few:

  • Rand recovery - finally, two solid weeks one after another from the Rand as it hit its best level since mid-June. Can it keep the momentum going?
  • Trade War 2.0 - Trump released the plan for the next stage of the Trade War - a 'hot list' of $200bn of goods on which a 10% tariff may be introduced.
  • Investment drive boost - a massive $10bn investment into the energy sector in SA, from Saudi Arabia means that Ramaphosa's target is achieved if all goes according to pan.
  • UK crisis - Brexit continues to be the thorn in the UK's flesh as time rolls on, showing how such a defining vote (which many did not even understand - or expect) can have repercussions for years to come.
  • Soccer World Cup fever - many countries were distracted as their teams faced up in the finals of the World Cup, and small nations like Croatia almost went into shutdown for the game. (Sorry England, it ain't coming home - you are!)

When last did the Rand string two good weeks together?

It's been a long, long while.

In fact, almost one way traffic since mid-February, when the Rand hit R11.50 odd...

...but it finally seems that trend has been broken.

And not only was it broken, but it was in and among a host of major economic and political events, which were creating volatility globally and locally. This is quite something for a currency which often ends on the wrong side of these sorts of weeks.

One event that provided the trigger for some negative sentiment was the next step of the Trade War, as Trump announced the next list of Chinese products which were going to get hit. This list was tallied up to a whopping $200bn in goods, which was bad news for emerging markets.

It is interesting to view what an advantage Trump actually has in this, as the numbers of import/export between the two countries tells a story.

While China exports over USD 500bn in goods to the US, they import only USD 130bn...

...this means Trump has a lot more scope to work with.

And it also meant that the Rand took a pounding from fears of consequences:



But there was more to the story than that, because after the poor Wednesday for the Rand (and England, getting toppled by Croatia), there was a turnaround from the ZAR.

Following the retracement as high as 13.57, the Rand grabbed back all of 30c on Thursday.

This was potentially triggered by a lot of things, but some solid, positive news was that the Western Cape's dam levels had received an enormous boost following the torrential rain over the last few weeks. Dam levels are now over 50% on average, with more rain expected.

And then there was the investment drive, with a mega boost from Saudia Arabia, who has pledged $10bn in investment into South Africa's energy sector.

This gave the Rand some impetus, as bingo, we were back under R13.30...



And then, the other highlights for the week:

  • The UK crisis over Brexit just does not end, does it? This has been grabbing headlines in the UK and around the world for years now - since mid-2016 when the initial shock vote happened. The next stage of the crisis unfolded this last week, as Theresa May's Vice-chairman resigned, as well as Maria Caulfield. The big resignation however, was that of Boris Johnson as foreign secretary, as he said he could not support Theresa May's Brexit plan - it made him the third minister to quit in less than 24 hours!
  • The Rand's movements over the last 2 weeks have been very welcome, and it has vaulted it up from being the worst performing emerging currency, to being the third-best behind the Argentinian and Mexican Peso. Quite amazing what difference a few weeks can make!
  • In the Trump world, the next thing on the agenda was NATO, where he chastised allies for their lack of contribution, before an event-filled visit to the UK to meet with the British PM Theresa May and the Queen, and following that with President Putin of Russia. This one is set to be one of their biggest meetings in recent times, and who knows quite what will come out of it.
  • The weak fundamentals in recent times have meant that the economy has contracted more in the first quarter than it has in the past 9 years - a quite telling (and shocking) statistic for anyone to consider. "Ramaphoria" has well and truly warn off...
  • However, Currencies Direct cited the mining and manufacturing data for May that were a positive surprise, and coupled with a weaker dollar made for good news for the Rand. Also that the US inflation was higher than expected at 2.9% YoY, likely cementing two further US interest rate hikes for 2018. Taking all this into account, they believe that after the false start, Q2 was going to be better.
  • The Minerals Council announced that a shocking 75% of SA's gold mines are now unprofitable - to think that it has come to this after the incredible driving force for SA's economy that gold mines used to be.
The Rand closed the week under R13.25 to end a very choppy but successful week for the ZAR...

The Week Ahead (16-20 July 2018)

Another great start to the week as the Rand has dipped below 13.20 .

The big event for this week is SARB interest rate decision, where the MPC is between a rock and a hard place..with Treasury Bill rates suggesting a small rate increase with an economy that hardly needs more stress.

What does this all mean for the Rand?

Well, we are not playing the normal economist "outcome drives direction" game, which is futile, because it only works half the time at best.

Instead we will be looking at the market patterns themselves to get direction, based on the Elliott Wave Principle, together with our ratio, momentum and time cycles studies to give us direction, and that suggests some more downside although we could see some retracement first.

Although the Elliott Wave Principle is not a perfect forecasting system (show me one that is!), it is still the best we have found for giving us and our clients.

So that is what we will be focusing on this week - and I suggest you do the same.

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All the best for the week ahead,
James Paynter

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