USD Rally Slows to Give Rand a Break...

And breathe...

The Rand took a slower week, giving everyone a chance to take a breather and recalibrate after a frantic few days.

The last few weeks have seen the Rand shed over 100c, which completely changed the playing field after the greenback had been on a hiding to nothing since the beginning of this year.

Now things are stabilizing again.

As the dust settles, we take a look the days and weeks ahead - will the Rand's good run continue?

Or is the party over for this year?

Let's take a deeper dive into the week with our thoughts...

Here were the biggest headlines from the 5 days to give some insight into the week:

• Inflation Red Flags - the warnings continue to come for the world on inflation, as different red flags are rearing their heads in SA, USA and other places...
• Fed Tries To Calm Nerves - it has been a rocky few weeks for the Federal Reserve, and they have continued to try and slow the worries around where the economy actually stands
• NHI & Corruption - the ANC continues to try push ahead with the National Health Insurance bill...but why? Where does this idea come from?
• US Spending Bill - Biden managed to finally secure some compromise from the Republican party to sign a massive spending bill...

So, to get back to the Rand, the local unit opened the week stumbling to R14.40/$, the worst levels since the beginning of May.

There was certainly a different feel in the air of the markets, from when the Rand was down testing toward R13.30 just a few weeks ago.

Not only had the Rand lost ground, but the greenback as a whole had gained some big numbers, with the Dollar Index indicating a massive bounce:

This reflected in other markets like the EURUSD and Gold, who suffered big losses.

But after the frantic couple of weeks, we were probably due for some consolidation.

And that was what we got in the first half of the week, as the Rand tracked sideways, gently gaining some precious cents on the USD.

All the while, there were triggers aplenty for the ZAR, as economic news rolled in thick and fast...

...and not all of it was good:

• SA's consumer inflation reached it's highest level in 30 months, rising 5.2% in May from 4.4% in April. This is now the highest level since November 2018. Inflation is now above the 4.5% midpoint of the central bank's target range for the first time in 15 months. However, the view of economists such as Bloomberg was that it probably will not yet trigger a rate hike…
• Then over in the US, Core Personal Consumption Expenditures rose 3.4% from a year ago, which was in line with Wall Street estimates, but still the biggest increase since 1992. It is always worth bearing in mind with these figures is that last year we were experiencing some of the biggest year-on-year drops - now the inverse is happening, with the biggest year on year gains. Month to month is what really gives better indications, as the increases can be better monitored…

But the fact remains - inflation is a key talking point in the coming days, and the even although the Fed had tried to calm nerves earlier in the week, with Powell's comments of saying it was "very, very unlikely" that the US will see 1970s style inflation.

Powell also declared that the Fed would not raise interest rates pre-emptively based on fears of inflation alone. But two Fed officials stated that high US inflation could be around longer than anticipated as the country’s post pandemic recovery gets under way.

Regardless, the Rand pushed on, testing lower by Thursday to break below R14.20/$...

And then in other news:

• Locally, corruption news continues to take the headlines, as more figures continue to come out showing the extent of the damage from lawless government: such as R1.5 trillion was lost to corruption between 2014-2019. This involved Gupta and all of their scandals, but the country continues to bleed funds through corrupt BEE and other similar deals. At the same time, there are red flags for more of the same coming with other schemes such as the NHI (National Health Insurance) plan. Anthea Jeffrey, a watchdog when it comes to things like this, called it out this last week for what it is - part of the NDR plan of communist policies.
• Over in the US, Biden secured a big win by getting a partisan group of senators together to pass an infrastructure bill. While not as big as previously hoped, it was still one of the rare bills that anyone has managed to get through congress without it being forced through by one side or the other. The framework will include $579 billion in new spending, the White House said:

1. $312 billion will go to transportation, with $109 billion invested in roads, bridges and other major projects, $66 billion in passenger and freight rail and $49 billion in public transit
2. Only $15 billion will go toward electric vehicle infrastructure and electric buses and transit, a fraction of what Biden first proposed
3. The plan would put $266 billion into non-transportation infrastructure
4. It includes $73 billion for power, $65 billion for broadband and $55 billion for water

And then getting back to the Rand in the last half of the week, we saw the ZAR push stronger toward R14 again, before bouncing toward the end of Friday, eventually ending upwards of R14.10 once again.

Overall, a much quieter week - and one that was much appreciated after the frantic stretch we have been on!

The Week Ahead (28 June - 2 July 2021)

This next week is setting up to be really interesting, as we know that the quiet markets can only last so long. With a good number of events incoming, there is no doubt that we are going to see some action soon.

Here are some of the noteworthy ones:

• SA - Balance of Trade
• US - Jobless Claims, Nonfarm Payrolls, Goods Trade Balance, FOMC Minutes
• EU & UK - GDP, Consumer Price Index, BoE speeches, Retail Sales

And from today, for the banking world, Basell III comes into effect, which will require physical, or allocated, gold (like bars and coins), to be reclassified from a tier 3 asset (the riskiest asset class), to a tier 1 zero-risk weight (putting it right alongside with cash and currencies as an asset class), which allows physical gold in bullion form to be counted at 100% value for reserve purposes. Gold in unallocated paper contracts will no longer be considered an equal asset.

This could result in quite a shake-up in banking liquidity and forex and metals markets going forward, which could also affect the Rand.

Overall, we continue to expect volatility and will be watching key levels to confirm our preferred wave count for the weeks ahead and beyond. We suggest you do the same!

Please take our Rand forecasting service for a test-drive!

This will give you access to the same charts we are to give us and our clients the likely direction of the Rand - ahead of time, enabling you to make educated and informed decision.

Simply use the link below to get access now. No charge. No card. All yours to trial for 14 days.

Click here now to start your free trial(You don't want to regret not having done so this time next week...)

Look forward to hearing from you.

To your success~

James Paynter