Welcome to another dose of our Weekly Rand Review insights!
After a solid run in the last few weeks, the Rand hit a roadblock last week as global risks mounted and strong U.S. data shook up emerging market currencies...
...fortunately, our forecasting model saw this coming so our clients were prepared
What started as a promising week with positive local manufacturing data quickly turned sour as geopolitical tensions in the Middle East escalated and U.S. job numbers far exceeded expectations, putting the Rand squarely on the back foot.
By the end of the week, the Rand found itself firmly on the back foot, and vulnerable once again to global risk sentiment and US dollar strength.
Let’s break down the week’s movements and look ahead to what might be in store for the coming days...
Key Moments (30 Sep - 4 Oct 2024):
Some of the more pertinent headlines and events over the past week:
- SA’s Mixed Signals:Fuel prices hit a 3 year low, and Manufacturing PMI bounced back, but trade surplus slumps
- US Data Surprises:Service PMI also bounced, while US Non-farm Payrolls surpassed all expectations (but is this accurate?) putting a damper on rate cut hopes.
- Middle East Conflict Escalates: The killing of Hezbollah’s leader and Iran's retaliation has heightened geopolitical tensions.
The Rand started the week tentatively, opening around R17.08/$ and trading stronger to hit a fresh 19 month low of R17.03 in the early hours before Saffers awoke...
...but that is where stopped - and about-turned - as the market reacted to the news that Hezbollah's long-time leader had been taken out in a targeted strike by Israel, escalating tensions across the Middle East.
The news triggered a risk-off sentiment globally, sending the USD higher and weighing heavily on the Rand, as it reversed strongly to touch R17.30 in the afternoon, before closing in the lower R17.20s with a sharp narrowing of the trade surplus to R5.3bn also adding some impetus...
...this being despite the good news that fuel prices would drop to their lowest level in 3 years - a huge relief for consumers.
Quite a turnaround after 3 weeks of solid gains...
...and our forecasting system had this one nailed as can be seen from our short term update issued on Friday, which expected a bottoming out in the R17.20-16.95 area before rising above R17.31...see below (click to enlarge)
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Pretty satisfying, especially to those who took action (importers and investors) or waited (exporters)...
...the question is: Were YOU one of these?
If not, we are here to help - just reply to this email...
But if this was to play out, more upside was to be expected, confirmed by a break above R17.31/$ with next resistance around R17.60...it was going to be interesting how this played out!
Tuesday started with cautious optimism as the Rand traded in a narrow range...
...but it didn't stay that way for long despite the ABSA Manufacturing PMI for September bouncing back to 52.8 (the first expansion in several months) or the news that US Manufacturing PMI had stood still at 47.2.
Any positivity was overshadowed by Middle East tensions, and the Rand continued to lose ground hitting a high of R17.48/$ before managing to claw back in late trade to close around R17.41 to the US dollar.
Wednesday was a better but choppy day for the Rand, as the market remained jittery due to ongoing geopolitical tensions in the Middle East and the anticipation of U.S. Jobs data.
The Rand hit a high of R17.47 before managing to regain some ground to close out the day in the lower 17.30s.
In other news:
- In a dramatic escalation of Middle East tensions, Iran launched 180 missiles into Israel in retaliation for the recent blows against Hezbollah's leadership in recent weeks, targeting Mossad's headquarters among other strategic locations.
This sparked a vow of retaliation from Israel PM Netanyahu, increasing the fears that this will spark a region-wide conflict.
- The cryptocurrency market took a hit after the U.S. SEC filed an appeal in the ongoing XRP case. Bitcoin dropped below $60,000, and XRP saw a sharp decline as the market reacted to the regulatory uncertainty.
The crypto market’s slide added an extra layer of risk-off sentiment in global markets, impacting risk-sensitive currencies like the Rand.
Thursday was another rollercoaster nightmare for the Rand as the market continued to risk-off sentiment due to the increased geopolitical tensions, as well as started positioning itself for US Non-Farm Payrolls release on Friday.
Opening at R17.34, the market initially pushed higher to test R17.42 before the Rand pulled back to hit R17.29, but the release of US Services Purchasing Managers Index (PMI) showing a increase to 54.7 from 51.5 seemed to be the trigger for another thrust higher for the Dollar.
In no time, the Rand lost more than 25 cents as the USDZAR hit R17.55/$ before closing out just under R17.50.
The Rand was range-bound until after lunch on Friday, as traders awaited US Non-farm Payrolls, which again provided a trigger for a big move.
Job growth in September topped all estimates, with non-farm payrolls increasing by 254k, the most in 6 months, while unemployment dropped to 4.1%...
...again, we need to question this data, following recent gross overestimates of job growth - as well it being the last release before the US elections!
But it was a trigger, and the Dollar took off with the news as it pushed higher and pulled the Rand with it by the scruff of the neck, hitting a high of R17.60 (our exact target resistance level) before the Rand managed to find some fight to pull back below R17.50.
So rather a dismal week for the Rand, but a very satisfying one from a Rand prediction point of view, with the market playing out exactly as we had anticipated.
Weekly Wrap-Up & Risk Analysis
How did this past week perform in terms of volatility and the resultant risk analysis for your exposures?
The week more volatile than last week:
- Average Daily Range: The average daily fluctuation for the USD/ZAR exchange rate last week was 18.2c or approximately 1.04%.
- Weekly Range: Over the entire week, the total fluctuation from the highest point to the lowest point was 40c or 2.3%.
What does this mean for you?
For every R1 million exposure, the potential profit or loss could have been:
- Daily fluctuation: Around R18,200 on any given day.
- Weekly fluctuation: As much as R40,000 over the week.
These fluctuations highlight the importance of having a dynamic forex strategy for timing your hedging and conversions to both:
- Mitigate potential losses and
- Take advantage of favorable market movements.
Hence the importance of having a roadmap that can help you make the right decision at the right time - at a fraction of the cost of your risk!
Looking ahead this week, we have FOMC minutes and Inflation data coming out of the US, while locally we have Mining and Manufacturing Production releases to look out for, while in the UK GDP will be an important one to see where things are heading.
And then, of course, we have the global tensions as well as the countdown to the US elections with October surprises on the cards.
Stay tuned, and feel free to share your thoughts or ask any questions!
To give you a little helping hand, feel free to 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.
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.
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If you have any questions or feedback, please leave them below.
To your success~
James Paynter
P.S. Worrying about how to in manage your Rand exposures this year? Email me or give me a call on (041) 373-6310 or (087) 551 2848 - we would love to help.
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