Rand pushes stronger on Dollar weakness

The quiet trading of the Rand stronger against the Dollar made for an interesting week, as investors and traders slowly unwound their emotions from the crazy last few weeks.

July has been unusually quiet for the Rand...which makes us wonder how much longer it is going to last?

Dollar weakness made for the Rand ending the week on the front foot - a welcome surprise.

But as Covid-19 continues to rage on, when is the penny going to drop for many crippled economies?

It is an interesting question, with everyone in the same boat - suddenly the playing field between emerging markets and the big boys has been narrowed.

However, the depth of each country's back pocket is going to be tested, and that may be the deciding factor.

Anyway, let's get into the full Rand Review...

Firstly, here were the main talking points from the 5 days:

• SARB releases - the Reserve bank provided us with a number of talking points around bond buying, inflation and more.
• Covid-19 surges - as the US exploded to more than 3 million cases, rapidly continuing the exponential curve, the tightrope continued for the Trump administration between economic hurt and more Covid-19 infections
• Jobless claims - and despite the supposed rebound of the economy, jobless claims continued to roll in, week after week
• Insurance court case - SA insurance companies have found a loophole up until now to not pay out...however, a historic court judgement has turned this around

To open the week, the Rand got off to a flying start against the Dollar, without any sign of Monday blues.

The market headed down sub R17/$, to test as strong as R16.88 before we saw it retracing over the coming days.

This week didn't have a pile of economic news, but some of the bigger announcements came from SARB:

• Bond purchases for June were down to 'just' R5bn, a significant reduction on previous months at half of the monthly average. This follows the launch of the bond-buying program back in March, and these are small signs of the markets stabilizing again. This follows the reduction of overnight repo auctions from 2 to 1 back in May. However, all of this is still abnormal and signs that normality is certainly not back yet.
• SARB also announced that they believe they are coming to the end of the rate cutting cycle, following the massive 275 basis point reduction over the last few months. It was a desperate attempt from the Reserve Bank to stimulate the economy as the pandemic and lockdown crashed different industries. Inflation levels will also be watched to get an indication of where we are in the cycle, as there scope yet for another 25 basis point cut when SARB meets later this month.

Interesting times for the Reserve Bank as they try to play the game of tightrope walking like everybody else.

It really is a question of how much this could have been avoided for so many countries, as economies like Japan's and South Korea's have continued, having not implemented intense lockdown restrictions or having shutdown their economies.

Ramaphosa admitted that the lockdown didn't do much more than delay the peak of cases, and the US is seeing the same thing as they try to reopen...

The US count has continued to surge to over 3 million with now closing 150,000 persons dead. But would it have been the same if the US had not shut down at all? At this stage, it is tough to tell, but case studies will show this in the future...

In other news:

• US Jobless claims proved once again that the US is not out of the woods, with another 1.3 million claims tainting the previously excellent non-farm payrolls. With the stats being a little murky, we continue to watch these weekly, to see to what extent the recovery is really taking place.
• Hardship clearly remains as Congress is due to consider another stimulus package for the US with more stimulus checks etc included. If the V-shaped recovery was really taking place, there would be no need for these kinds of packages. The US Fed and Bank of Japan once again promoted their printing presses, stating that further support will be given if negative economic data continues to be released.
• The UK proved the same by releasing details on a massive package of $38bn on restaurant discounts, employer benefits for employee retention, tax breaks and much more. With the economy set to contract by as much as 14% this year, this package is probably the bare minimum that could have been done to stop the rot.
• Locally, we saw a critical court judgement in a case between Guardrisk and Cafe Chameleon, which saw the insurance company is liable to pay out the Cafe's claim for losses suffered during the lockdown period. Insurance companies until now have been playing the card of it being government enforced, not due to the pandemic. It is unclear whether this will set a precedent - if so, it will be a whole lot of pain coming insurance companies way very shortly.

As for the Rand, its solid week continued into the backend of the 5 days, with Friday's trade seeing the market SA close below R16.80...

It had been a really intriguing week, as the Rand fared better than most of its counterpart emerging markets, proving the markets movements to be more than just Dollar weakness.

Speaking of which, the unwinding of the Dollar's highs from March has been quite spectacular when you look at it on a chart...

The ever changing landscape continues...and this time, to the Rand's advantage.

As we look to the week ahead, we have a number of fairly important economic events coming up over the next few days:

• SA - Inflation Rate, Retail Sales
• USA - CPI, Retail Sales, Jobless Claims
• UK & EU - GDP, Unemployment, ECB Interest Rate & Monetary Policy Conference

The Rand doesn't normally keep so quiet and placid for long, and these will certainly provide some triggers...

And that is not even including the emotions already running high with so many ongoing local and global issues, Covid, US/China tension and trade wars, middle-east tensions and more.

All of these events eventually come back to the fear & greed factor.

The balance of all these emotions of all the persons involved in the Rand market will dictate where the market is headed...

...and those same emotions are your worst enemy.

When the market is trading with high volatility, it is extremely difficult to make rational and educated decisions that often mean doing the opposite of what your emotions are telling you.

And that is why we rely on our Elliott Wave based forecasting system to give us a scientific-based objective view of where the market is likely headed in time and price.

Based on the current analysis and forecast, we expect a few surprises (for the unprepared) the next week or two and we will be closely watching some key levels to confirm or invalidate our preferred outlook.

(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