Trade War 'trumps' the ZAR

A topsy-turvy week for the local currency saw a wide range of trade against the US Dollar, amidst a slew of events from the US side of the pond.

There was almost too much on the go to keep track of...

What with:

  • Trump's national emergency
  • Meeting with Kim Jong-un
  • US-China Trade talks and more...
...it was always going to be a big week.

Locally, there were a slew of events and economic figures too.

All things said and done, we are left with a lot to review. Let's get right into it!

And here are some of the noteworthy events from the 5 days:

  • Brexit debacle - possible delays are now being asked for by Theresa May, as the Labour party looks for another vote to be had by the public...!
  • Trade talks - "substantial progress" was said to have been made...only for it to all unravel again on the other side of the week...
  • Trump-Kim summit - the long awaited meeting did not quite go down as planned...leaving many wondering what "Rocket Man" will do next!
  • Downgrade watch - Moody's deadline of the end of March is hanging over SA...

The week began with the news from the US side of the pond... President Trump had tweeted over the weekend that "substantial progress" had been made in talks between the US and China.

This progress was finally evident for all to see when the Trump Administration announced that it has shelved its threat to add tariffs onto $200bn of Chinese exports. These are to be suspended until further notice...so while the Trade War effects are still being felt by many, there is an indication that some relief is coming.

This gave the Rand a boost to kickstart the week, as it opened a touch below R14/$, then strengthening fast down to R13.80 by close of trade in SA.

As for the Pound, it enjoyed a strong week, despite the Brexit turmoil continuing!

This has been one of the most difficult events to keep on top of, as the different changes just keep coming.

The latest appears to be:

  • A very likely delay of Brexit, meaning Theresa May gets longer to make her deal with the EU
  • While the Labor party would support another referendum (vote) for the British people to vote whether they really want to pull out of the EU...considering rumour has it that half of Britain didn't even know what they were voting for, this may just be a good idea?
  • Anyway, on the back of the news that there may be a delay, the Pound got a solid boost. A Brexit without a plan would have been disastrous for Britain and the Pound...
...so an extension of the timeframe is good news, as it means a real deal can hopefully be reached.

The Rand took a real 'pounding' against the GBP as a result of this:

USDZAR_STU

As did other majors, as all round the Pound made up some lost ground.

But we are yet to see whether Theresa May will actually get a deal passed, or get the extension of the Brexit date. A lot of unknowns right now, and Rob Davies of South Africa is doing his best to be ready for both scenarios by getting Brexit trade deals in place ASAP. You would have to see this as essential, with the uncertainty of the position.

As for the USDZAR, we saw a very similar chart to the GBPZAR. It was a woeful performance after Monday's gains, as we saw a strong reversal from R13.80 levels to well over R14...

USDZAR_STU

These were some of the other notable events from the week:

  • With SA's credit rating at risk, all eyes are on whether we will see any indication of what Moody's outlook will be. Some reports are suggesting that Finance Minister Tito has done enough to convince Moody’s of SA’s sovereign rating...but we will have to see. The biggest concern to the ratings agency lies with the SOEs, and in particular Eskom, as these form massive burdens on the state coffers. Eskom was back to issuing warnings of a high risk of load shedding over the weekend, proving once again that it certainly is not all over just yet. They also announced that they are starting to shut down old coal power plants, including laying off 2300 contract workers. There is a lot more to come on this subject... but for now, reports are that Tito Mboweni's budget and plans for Eskom have been clear enough to stabilize Moody's take on the situation, and hold them off for one more period. They (Moody's) did announce that Eskom's outlook is back to 'stable' instead of 'negative'...time will tell!

  • In other economic data, SA's Trade balance was not looking in good shape, as exports have decreased 13.1% month-on-month, and imports have increased 18.9% month-on-month. The trade balance revealed a deficit of R13.1bn. On the US side of the pond, Q4 GDP and manufacturing figures beat market expectations, but Fed's Powell confirmed that the US economy had slowed down slightly and that the Fed will remain patient with any further rate hikes.

  • President Trump's much-anticipated meeting with Kim Jong-un happened on 27-28 Feb in Hanoi, Vietnam, as there was an attempt to clear the air again between the two leaders. But that did not happen in the slightest, as Trump walked out of the meeting, after the Communist leader demanded a full lifting of sanctions before partial denuclearization begins. Frankly, as much as Trump would love to do a deal, one cannot negotiate or trust a ruthless despot that would execute his own relatives with anti-aircraft guns. .Any attempts to keep this Communist regime alive through some compromise belittles all the many lives lost in fighting against it!

  • And then just as things were looking positive for the Trade War talks, everything seemed to be turned on its head again later in the week. President Trump claimed that the US could walk away from the US/China trade deal if it isn’t good enough (quite the opposite to his tweet last Sunday). It was as if his leaving the meeting with Rocket Man was a warning shot to President Xi and China, that he WILL negotiate his way into the best position in any deal. If he can't, he will just walk away...and that leaves an uneasy sense of anticipation of the next shot to be fired from either side, particularly for emerging markets.

  • There were other big events to cover, but too much for one review, such as suggestions that a tax ceiling has been reached in SA, and updates on the State Capture situation.
    Also, for a complete recap of Tito Mboweni's budget, take a look over here.

As for the USDZAR, Friday gave us more Rand weakness, as the ZAR erked its way toward R14.25 to the Dollar, closing above R14.20. Until we get clarity on the credit ratings, one would expect this to be a bumpy ride of sentiment...!

The Week Ahead (4-8 Mar 2019)

The first week of March, and a slew of economic releases and events that all could provide some major triggers for moves - ECB interest rates decisions, SA Q4 2018 Current Account and of course US Non Farm Payrolls.

And apart from that, the continuing Brexit saga and US-China Trade Wars, as well as local woes with Eskom being the main culprit, all combine to provide us with a week full of uncertainty...

...but one thing is certain - expect a volatile week on the markets.

The last few weeks have shown that events do not give direction, but are merely triggers.

While not a foolproof crystal ball, we have found over the years that the best hints for direction does not come from analyzing the news or data, but instead from analyzing the patterns of sentiment to give us (and our clients with Rand exposures) an edge as to where the market is likely to head in the short, medium and long term.

While there could be some initial Rand strength, it looks like a potential rocky patch for the Rand in the short term.

For more details, and a roadmap on where we expect the market to head the next few days weeks and months ahead, simply join us today and give our free trial a shot.

We are here to help make your forex experience decision-making more profitable - with less stress, time and effort.

To your success~

James

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