The headline from Fin24 said it all:
"Traders suddenly dare to believe in an emerging-market rally"
The Rand has kept on the front foot, very steadily and slowly over the last few weeks... along with the Turkish Lira, Chinese Yuan and Mexican & Argentinian Peso all trading stable or stronger into 2019.
With the US Govt shutdown dragging on, now by far the longest in history, the Dollar has been battling hard.
And as currencies go, the Dollar's loss is everyone else's gain.
And so another tumultuous week (Brexit, Zimbabwe & more) played out...let's take a look at how it did.
The week had some major events in it. Here are a few of them:
- Brexit vote - Theresa May, as expected, was shot down in parliament by angry party members, furious with her handling of the Brexit situation...
- Government shutdown continues - on the other side of the pond, the US had their own issues with the government shutdown pushing close to 1 month!
- Zimbabwe crisis - and then, just to add to the fun, Zimbabwe went into their next collapse of infrastructure, utilities, currency and more, all at once
- Reserve Bank - Ramaphosa made some important comments around SARB's independence, saying that it was sacrosanct (regarded as too important or valuable to be interfered with.)
- SA Interest Rate - the first D-day of 2019 loomed for SARB, as they had to make a call on to hold steady, increase or decrease interest rates.
The week began with all of the global issues taking center stage...
Brexit. The conundrum which has faced the EU for going on 3 years now. How was this one going to end?
The all important vote was Tuesday - would Theresa May's Brexit plan be a success by a whisker, or a catastrophic failure? Anything short of victory was going to be a disaster, with just a handful days to come back with another proposal, should the existing one fail.
And fail it did. With a crash and a bang, she was blasted down by more than 200 votes, with more than 400 voting against it, and just 230 odd for it.
This triggered the next stage - another vote of no confidence in PM May.
This took place on Wednesday, where she scraped through by just 19 votes, 325 to 306. It is becoming more and more apparent that while she continues to hold the position of PM, she is completely out of control of the situation. The only reason she is holding on by a thread is because if she were to be voted out, it would trigger a general election, which is the last thing her party wants.
And so, today (Monday the 21st) is the next D-day, with another Brexit plan needing to be completed before midnight.
Then there was the US. The government shutdown rolled on, closing in on 30 days of federal inactivity...
This is making a hugely difficult period for all businesses and general economic growth. One can well understand this dragging the Dollar down.
At this stage, the stalemate is continuing, unabated!
As for the Rand, it didn't bat an eye at all of this!
After touching R13.96 on Monday morning, the steady strengthening resumed.
By close on Tuesday, we were close to R13.70/$ again!
This was all happening while neighbors Zimbabwe were dealing with their own problems, and serious ones at that.
The country exploded into turmoil this last week as foreign-exchange shortages sparked scarcities of everything from bread to fuel - which more than doubled to around R50/litre... Protests, shooting, violence and more broke out, as the government forces tried to keep things under control. To make matters worse, the government decided it was a good idea to restrict internet access - only further proving their attempts to hide what was really going on!
This resulted in UK's minister for Africa summoning Zimbabwe's ambassador to discuss "disturbing reports of use of live ammunition, intimidation and excessive force" against protesters.
There was much more to another hectic week:
- With the SARB Interest rate decision due on Thursday, the ANC decided this was a good time to make comments in their manifesto as to what SARB's actions should be...not great timing! The ruling party suggested the bank should broaden its focus to boost employment and economic growth - which is not what the Reserve Bank is there for! It's to maintain economic stability in the country no matter what. Not that focusing on employment and economic growth is a bad thing - but it is not the ANC's place, as SARB is completely independent, which meant this was very concerning...
...contrary to a statement released by the SA Communist Party, Ramaphosa did clarify later in the week that the independence of the Reserve Bank was "sacrosanct" ("too important or valuable to be interfered with"). The SACP however, released a blog post saying that it was imperative to align the SA Reserve Bank mandate with the second radical phase of the National Democratic Revolution...(read nationalization of SARB)
- This then rolled on to the interest rate decision itself on Thursday, and SARB took the expected, more conservative decision to just hold interest rates for now. The market was choppy around the decision, with the Rand spiking to touch R13.83, before falling back down to 13.66 later in the same day.
- Moody's view on SA has been a slightly shaky one over the years gone by, particularly with the credit rating siting on the edge of a cliff. They released a report this last week (which does not count as a ratings action), but saying that SA's outlook is stable heading into 2019 thanks to better institutions and increasing transparency. However, unstable power, no clarity on land reform and debt and lack of GDP growth are all reasons for concern going forward...
- Fuel prices continue to move in the right direction, as the AA has predicted yet another petrol price drop heading into February, thanks to the continued oil price weakness. At this stage, it looks like a smaller 12c drop for petrol, but a large 36c drop for diesel. Anything in the right direction, motorists will appreciate!
The Rand continued a little choppy on Friday, and lost some clear ground for the first time days, as it moved over 1% weaker to close out the day around R13.85...
The Week Ahead 21-25 January 2019)
The weeks starts with news that President Trump has put forward a very reasonable and fair proposal to end the impasse yet ensure border security, which is one of the promises Trump made to the American people - and one he is bent on keeping.
If the Democrats don't come to the party, it will on clearly demonstrate how bent they are on pure obstruction ... the next few days will show.
And the other side of the pond, a Theresa May has to come up with a 'Plan B' for Brexit to lawmakers on Monday...don't expect this to be a smooth ride.
Then we have an ECB Interest rate decision, which could also provide another trigger for currency moves.
What does all this mean fr the Rand?
Overall, we will be looking at the market patterns themselves to give us some clues, and while it looks like the Rand could weaken short-term after a few sterling weeks, it is not going to be all one-way traffic.
So, if you have some exposures, and need some roadmap for expected movements, please give our free trial a shot.
We are here to help.
To your success~