Welcome back to your favourite Weekly Rand Review!
In yet another week marked by a scarcity of impactful local economic events, the South African Rand once again found its direction from global developments…
…and it was the right direction from a local perspective as the Rand made a solid comeback on the back of a US dollar fallout, following Moody's downgrade of US debt as well as positive signs on the inflation front in the United States, which influenced global sentiment.
However, the week wasn't just marked by economic indicators.
A major story also unfolded as several banks, both locally and abroad, faced scrutiny and consequences for their involvement in Rand manipulation over a number of years...
…and let’s just say that the amounts involved in these manipulative actions were staggering!
Let’s get into the review.
Key Moments (13-17 Nov 2023)
These were some of the major headlines over the last five days:
- Rand Manipulation - Standard Chartered were among 28 banks prosecuted by the Competition Commission for their involvement in manipulating the rand/dollar currency pair during the period spanning from 2003 to 2013.
- US Inflation - The rand experienced a significant surge as the dollar weakened following softer-than-anticipated US consumer inflation data, leading to heightened expectations that the Federal Reserve might halt interest rate hikes.
After a sad week prior, the Rand was changing hands around R18.70/$ at first call on Monday morning. With no major economic events to influence sentiment in the early part of the week, the local unit traded mainly sideways until Tuesday afternoon…
…when the rand surged as the US dollar weakened, triggered by softer-than-expected US consumer inflation data.
Expectations could now be the Federal Reserve is done with interest rate hikes.
US consumer prices held steady in October, while producer prices experienced its most significant drop in three-and-a-half years...
...primarily due to a sharp decline in the cost of gasoline.
While the recent CPI and PPI readings bring positive news for consumers and the Federal Reserve, there is still a significant amount of economic data scheduled to be released before the central bank's next policymaking meeting on December 12-13. The results largely seemed to re-enforce the belief that the Fed would maintain rates at current levels for the foreseeable future - and investors' appetites notably increased for riskier assets...
...with the Rand certainly one of those.
The local unit was trading at R18.72/$ before the release of the CPI results, but improved by almost 50c to the greenback by the end of the day!
A huge gain!
Tuesday also saw the strongest demand from local banks at a government bond auction since July 2021, with foreign investors returning to the market. The local unit continued to rake in the gains on Wednesday morning off the back of positive local retail sales results.
Data from Stats SA revealed that domestic retail sales increased by 0.9% year on year in September, rebounding from a 0.3% decline in the year to August.
While the rise in the trading sector is anticipated to contribute positively to the third-quarter GDP number, this gain may be counteracted by declines in mining and manufacturing production during the same period.
On the positive, though, the Rand’s rally this week comes at just the right time to help inflationary pressure concerns…
…especially leading up to the Reserve Banks meeting later this week.
Hopefully, they keep their hands off the rate trigger!
Other notable results in the week included local unemployment figures that slightly decreased from 32.6% to 31.9% in Q3, according to Stats SA's Quarterly Labour Force Survey.
However, at 31.9% (official figure - what the actual is is another question), South Africa is still a chart-topper in terms of unemployment - and the outlook of major improvement looks bleak in an economy that may be experiencing a contraction.
The Rand slipped in early trade on Thursday against a strong dollar, gradually reversing Tuesday's gains. After a brief spike to R18.40/$ in evening trade, the local unit settled in the mid R18.30 heading into Friday.
But before we close out, let’s take a look at another development that grabbed headlines last week.
In February 2017, the Competition Commission referred several banks to the Competition Tribunal for Rand price fixing, initiating the "Forex Cartel" case. The manipulation affected the South African Rand's exchange rate, impacting various aspects of the economy.
Last week, one of the 28 banks that were accused of manipulating the Rand/Dollar currency pair between 2003 and 2013 admitted liability in the case.
The culprit in question was UK-based multinational Standard Chartered Bank.
The UK-based multinational bank has now agreed to settle with the Competition Commission for R42.7 million in connection with the manipulation scandal. The commission outlined SCB's participation in manipulating the USD/ZAR currency pair by fixing bids, offers, bid-offer spreads, and the spot exchange rate.
Additionally, the bank engaged in market division by allocating customers, a practice in which one trader refrains or withdraws their existing bid or offer from the market to enable the other trader to execute and complete their trade.
This settlement follows Citibank's similar conduct settlement with the commission in 2017, amounting to R69.5 million.
But that’s just a drop in the ocean if what manager Makgale Mohlala told the Competition Tribunal is true - that the Rand manipulation is estimated to have generated around a trillion Rand daily between 2007 and 2013!
One trillion Rand per day!?
IF this is indeed correct, this is mind-boggling!
EFF leader Julius Malema weighed in and lambasted the SA Reserve Bank for failing to oversee the banking sector in the country. The party leader went on to mention that it is disconcerting that despite the Competition Commission's initial findings in 2017, no one has been prosecuted or incarcerated…
…allowing those involved to continue benefiting from this corrupt practice.
As hard as it is sometimes to agree with the controversial party leader, he does every now and again say what others shy away from.
Other banks that are under scrutiny include: Absa, Standard Bank, Nedbank, FirstRand, Investec, Standard Americas, Australia and New Zealand Banking Group, Commerz Bank,, Macquarie Bank Limited, Barclays, Bank of America, HSBC Bank, Merrill Lynch Pierce Fenner and Smith, JP Morgan Chase, and Credit Suisse.
Quite a list.
We’ll keep an eye on how this story develops.
By Friday the Rand got going a shade above R18.40 for one greenback.
The local unit had another mini-flurry of gains around lunchtime but settled back in the R18.30s to hold on to a big green arrow.
The Week Ahead (20-24 November 2023)
Here's what we'll be eyeing up over the next five days:
- SA:Inflation Rate YoY (Oct), Interest Rate Decision
- EU/UK:UK Autumn Statement
- US: FOMC Minutes
Another thin but important week on the cards with all eyes on SARB and their plans for interest rates following October’s inflation report. With limited key US data until the end of the month, can the Rand improve further, or are we in for another reversal next week?
Our Elliottwave-based forecasts seem to have some idea, so be sure to check them out if you haven’t already done so.
Until next week. Safe trading.
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To your success~
James Paynter
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