Rand runs out of steam...and pays for it

I guess a tough week for the Rand was always going to coming after a week of strength, where the local currency fought gamely to turn the tide back in its favour.

And after a good start, when the Rand seemed to be gaining the upper hand, and pushing to test key support levels...it just simply ran out of steam...

...and paid the price for doing so, losing all the hard-earned gains from the previous week.

The battle seems set to continue too, with some key levels needing to be broken to confirm or invalidate the possible wave counts.

The market sure is continuing to keep everyone on their toes...

For now, let's review this past week as a starting point.

It was a week of more volatility and events, as the rollercoaster just continued!Here are a few of the noteworthy ones:

  • UK backing to EWC and SA - Theresa May came bearing good news for SA, as she proposed to increase investments into the country. But with that, came her backing for 'fair' EWC...it is unclear as to whether this was a political statement, or one of honesty...(if so, she doesn't see the whole agenda)
  • US-China Trade - the situation continues to be uneasy, as tensions over North Korea are adding fuel to the fire of the Trade War...
  • Gold devaluation - the 'Gold standard' seems to be dwindling, as the market recently dropped to sub $1200 levels. This has been on the cards for a while, and it will be interesting to see how far it extends.
  • US Growth - with the economy humming, the GDP figures came out better than expected, and with unemployment still around record lows, it was tough for the Rand to make a move against a strong Dollar
  • Dollar Index - despite incredible USA economic figures, there has been a significant retracement from the Dollar Index. Where to from here, is the question, as this affects the Rand a fair bit?

Well, a week of mixed emotions which is difficult to review.

Just when it appeared that the Rand was getting back onto the front foot, the tables turned again. The first half of the week had been successful, as the market rallied on US Fed Chair's comments that the US Economy is 'not looking to over-heat anytime soon'. Investors deciphered this as the Fed not looking to raise interest rates as rapidly as previously thought.

Along with that, The People’s Bank of China added to their Quantitative Easing program (printing money) to help with continued economic growth. This could see their commodity shopping list grow which would help the ZAR, with China being SA’s biggest commodity buyer.

All this good news gave the Rand a fine start:



Good news for the US arrived on Tuesday, as a new bi-lateral trade agreement was signed with Mexico, bring some stability to the trade disagreements which seem to be raging globally.

While this gave some needed stability to the Trade War and those affected by it and was certainly Dollar positive news...

...yet, in the next 24 hours or so following the announcement, the Rand managed to briefly strengthen down to sub R14/$ levels.

Of interest, the other way such an event can be looked at is that this stability was actually great for the Rand, as it had been hurt by so much global tension and trade uncertainties.

It just shows how we cannot look to the news to give us market direction - everyone has a different take.

But the Rand could not hold on to the gains it had made...

...and from there, things began to go a little pear-shaped.

Late on Tuesday, SA's land expropriation bill from 2016 was withdrawn by parliament. While this was touted by mainstream media as a positive sign, it is anything but...as the thrust of this outdated bill (allowing the state to buy land at the value determined by a Government adjudicator) has been overtaken by a proposal by the ANC to change the constitution to allow for expropriation of land without compensation.

Along with that, Theresa May gave her support to SA expropriating land, provided it was fair and transparent ....'fair' and 'transparent' are terms which a not very synonymous with the ANC's policies and actions...

Despite all this 'Rand-positive' news, the Rand simply fell out of bed - before you could blink, it was trading at over R14.80 on Thursday evening - a more than 80c swing from a day or two before...!

Theresa may have been hoodwinked, but the markets certainly weren't being sucked in..

There were many more big events too which took the headlines:

  • US Q2 GDP came out better than expected, leading the market to believe the Fed will stick to their plan of increasing interest rates twice more this year.
  • The US and China are on a very volatile course right now, and things took a turn even further for the worse this last week. President Trump announced some fairly scathing comments on China, warning of their continued involvement and support of North Korea. At the same time, Trump also announced that his relationship with President Yi is not affected - how this is possible, is a little unclear...
  • While the days of the old US Gold Standard are long gone, 'real money' is still one of the most closely watched markets globally. And for the last 4 months, it has been on a steady decline in value. Many are claiming that gold as wealth preservation is gone, to be replaced by Bitcoin!
  • Banking Association of South Africa (BASA) has announced that the banks are onboard with the land reform situation. They have increased their loans to farmers by more than 10% since Dec 2017. Total loans in Dec sat at R133bn and are now at R148bn. It is tough to say what exactly these figures mean...
  • Budget gaps in SA have been an increasing issue, but this month, it hit the worst level in 14 years, taking us back to 2004 levels, as tax collection has been affected by weak economic growth...
Thankfully, Friday brought a little more stability to the markets, even though no real gains were shown.

But the Rand had capitulated on Wednesday and Thursday, and now sat trading still well north of R14.50/$...



The Week Ahead (3-7 September 2018)

Well, can you believe it - here we are at September already...

With it being officially Spring time for South Africa, the Rand certainly needs to get some much-need spring back into its step...

...but clearly its been a lethargic winter, and the local currency is still suffering from its battering last week, losing further ground today.

The next couple of days will be crucial to direction, and based on our analysis, many could be in for some surprises (is this maybe the new normal?)

Join us as we try and unravel the current market patterns for the next few days, weeks and months ahead.

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All the best for the week ahead,
James Paynter

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