Welcome to another issue of our Rand Review, as we navigate through a week that looked promising leading into the Budget speech...

...but it all unravelled rather quickly for the SA's Rand, as it took a plunge across the board to test key levels against the Dollar, Euro and Pound.

Rand fluctuations of this nature are always a two-edged sword, depending on where your Rand exposures lie:

...for SA exporter with open exposures, this would have come as a nice bonus, but not if you had already covered in your receipts.

...and the flip-side for the SA importer, who would be smiling if they had taken out forward cover for their expected commitments, but would be crying if not.

...and, of course, for the man on the street, it was not good news, as it meant higher prices are coming if we stay at these levels.

So, anyway, how did this tumultuous journey all play out?

Let's roll and find out

Key Moments (19-23 February 2024)

Some highlights from the past week:

• Budget Speech Optimism Meets Market Pessimism: It was always going to be about the Budget speech this past week, as the market anticipated the Finance Ministers fancy fiscal footwork balancing act.
• The GFECRA Strategy: Godongwana's plan to tap into reserves initially sent the Rand rallying, but the devil was in the details,

But before we get into the week's events, let us share some insights from what our Rand forecasting modelling was telling us about the week ahead, based on the sentiment cycles that were currently present.

As can be seen from the below Dollar vs Rand (USD/ZAR) short term forecast published on the prior Wednesday (see below), this told us that we could expect more downside (Rand strengthening), with a 60% bias then being for a reversal above R18.79/$, followed by a move up into the 19.21-19.44 area.

(Click to enlarge)

A fascinating outlook indeed - and one that would keep our clients in good stead if this played out as we expected it to!

Monday saw the SA Rand open in the lower R18.80s (USD/ZAR) after a solid performance the prior week, which had seen it pull well below the psychological R19/$ level.

But almost immediately, it could not hold onto its gains, as it tested the R19 level again before retracing later in the day to end the day around R18.95.

Then Tuesday dawned with the Rand on the backfoot once again, as it pushed higher to hit R19.08 against the Dollar...

...but just when it seemed like we could head still higher, the market reversed sharply with the release of South Africa's annual inflation rate data, which came in at 5.3% in January, up from December's 5.1%.

And with this, the Rand took heart and pushed back below R19 - to end the day around R18.90 per US$, as the market now focused squarely on Wednesday's Budget speech by Finance Minister Godongwana.

And it was something to digest, some highlights being.

• Economic Growth Forecasts: Treasury revised its growth forecasts for the South African economy, projecting a modest expansion of 0.6% for 2023 and an improved outlook of 1.6% for 2024, reflecting a cautious optimism about the country's economic recovery and resilience.
• Fiscal Discipline: Emphasizing fiscal responsibility, especially in an election year, the budget reflected a prudent approach to spending and borrowing, despite the political pressures of an election year.
• Tax Adjustments: In bad news for Saffers, the budget proposed not adjusting personal income tax brackets for inflation, effectively resulting in a higher tax burden for some taxpayers. Additionally, there were adjustments to excise tax rates on certain commodities.
• Budget Deficit and Debt Service Costs: The budget deficit for the 2023/24 fiscal year was projected at 4.9% of GDP, with debt-service costs expected to consume over 20% of revenue - underscoring the challenges of managing high debt levels while aiming for economic growth.

And then, there was the surprise package:

• Debt Reduction Plan: The government announced a strategic initiative to tap into the Government Foreign Exchange Contingency Reserve Account (GFECRA), aiming to reduce the scale of public debt sales.

  While this may look positive in terms of paying debt, there are manifold risks in doing so, limiting the government's ability to respond to unforeseen events that could affect the economy or the Rand's value.

  And it does not address the problem of the underlying public debt that has and is continuing to accumulate per above, and show signs of the government is unwilling to address on overburdened public service bill that the country cannot actually afford.

The Rand initially took heart with what was initially seen as a prudent budget, and gained around 18c to hit 18.76 to the Dollar...

...but the positive sentiment was short-lived, as the market reversed strongly to test back above R18.95/$, before subsiding to end the day in US trade around R18.90 to the greenback.

Meanwhile, in other news:

In a move of major importance to South Africa's international relations, the US Congress is currently considering Bill H.R.7256 (U.S.-South Africa Bilateral Relations Review Act), introduced on 6 February, to review U.S.-South Africa relations amid concerns over the South African government close ties with China and the Chinese Communist Party (CCP) as well as its relations with Russia and support of Hamas.

As the bill awaits further analysis, its outcome could significantly influence the future direction of US-South Africa cooperation and their global diplomatic stances as well as trade, with the US being a significant largest trade partner after China.

Be careful who you decide to keep company with - there are implications...

This one needs to be watched closely!

Getting back to the Rand, on Thursday the market initially pushed down to test the R18.85/$ as the markets continued to digest the details of the Budget...

...but then it seemed that reality kicked in, and we saw the Rand lose all of 35c in value as it breached R19.15...

...and then continued still higher on Friday to hit R19.39/$ - its worst levels since October last year...

...and is so doing, validating our forecast of the previous week to a tee!

The market seemed to find some resistance (as we anticipated in our forecast) around the April 2020 and retreated a bit off these levels to close out the week just below R19.30 to the Dollar.

In summary: A pretty miserable week for the Rand!

But for our forecasting system, it was another reminder of the fascinating way the markets work:-

The news just has the ability to provide the trigger for the market to react...

...but where it will head is based on the net positive/negative sentiment balance of all those persons involved in the market at that time.

And as a result...

...if you know the current cycles or waves of sentiment in play, you can have a pretty good idea what is going to happen next - based on how the market reacted in similar cycles in the past.

Before the news hits the market!

The Week Ahead (26 February - 2 March 2024)

So as we head into a week and welcome some March madness, here are a few releases to keep your eyes on:

• SA - Inflation Rate, Trade balance
• US - Durable Goods, GDP

And if you are looking for some direction, our forecasting system is giving us some important pointers for the weeks and months ahead...

...helping us and our clients to keep one step ahead of the market.

As we showed in the past week's move -

Hit the link below to get access to our latest predictions.

Until we meet again, safe trading!

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.

No charge. No card. All yours to trial for 14 days.

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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