A busy week for local and international economies...

...but it seemed like it was one-way traffic for the Rand as the local unit extended its losses to record a 2-year low versus the Dollar, testing R17.50/$ as investors continued to pile into the safe haven currency.

With markets having now digested the fact that the US Fed's next move is almost guaranteed to be a third consecutive 75 basis point rate hike, risky currencies like the Rand are still a long way from clear sailing...

...but as we well know, this is a rational view - and the markets are anything but rational!

As we enter the final lap of Q3, all eyes are on what defining moments are yet to come that are going to shape this year's end...

...and most of all, what is the Rand going to be worth by the time Q4 rolls in when major first-world economies are on tenterhooks as recession (or worse) looms.

Before we spill the beans on the week's events and our views, let's take a look at what our crystal ball was telling us...

Key Moments (5-9 Sep 2022)

Here was our short term forecast from Friday, September 2nd...

...as an be seen, t painted quite the picture for the week ahead of what we were to expect, with a move that had already taken the Rand to R17.29 expected to extend further before topping out higher in the 17.19-17.78 target area (see below - click to enlarge)

So as we went into the weekend, we and our clients weren't expecting much respite for the local unit.

As for major events from across the globe for potential triggers, these were some that got attention:

• SA Economic Contraction - South Africa's gross domestic product shrank by 0.7% in Q2 of 2022, knocking output backward to pre-pandemic levels. With ongoing load-shedding and a dreary economic outlook, can the local economy realistically bounce back in Q3?
• ECB Rate Hikes - After coming under major criticism recently for its tardy reaction to dampen record inflation, the ECB announced that all three of its key interest rates would be raised by an unprecedented 75 basis points. Too little too late? And can the economy afford it?”
• Strong US Service Sector - Reports on Wednesday showed that the US service industry unexpectedly improved last month, adding to a view by some that the world's number one economy is not in recession and has seen the peak of inflation.

Getting into the week, we saw the Rand open trade in the worst way possible...

...the local unit extended last week's losses showing up at R17.42/$ in early trade on Monday.

A brief retracement on Tuesday saw the Rand test the R17.05/$ region; however, it was short-lived...

...as an unexpectedly strong US service sector report on Wednesday triggered a quick reversal of the gains made, paving the way for another aggressive rate hike later this month.

The local unit once again showed its susceptibility to global economic drivers and plummeted to R17.45/$ in the blink of an eye, leaving Rand bulls reeling ahead of key local data releases on the horizon.

But for those that had our forecasts, this was all expected,.as our Elliott Wave based forecasting system had predicted this move weaker...

...allowing importers to take action to protect themselves, and exporters to take advantage of the weaker rates.

And the negative economic data rolled on - SA's GDP and current account data compounded woes as the local economy shrank by almost a full percent in Q2...

...while the current account swung to a deficit over the same period, to the tune of R87 Million, marking the first deficit reading since Q2 of 2020.

Meanwhile, Europe was headed in the opposite direction, as the shared economy expanded by an impressive 4.1% YoY and 0.8% on a quarterly basis.

The strong GDP figures were not enough though, to deter the ECB from announcing a blockbuster 75 basis point hike as the continent's energy crisis continues to intensify.

Then after weeks of relative silence, Russia has dealt the EU what could potentially be a telling blow...

...following last week's halt of gas supply via Nord Stream 1, Gazprom announced that it would not resume supply, pointing blame at a leak in the infrastructure that it claims cannot be fixed due to the sanctions that are barring several deals with Russia.

Here's a quick look at how supply has reduced since the start of the year.
By the looks of it, load-shedding is headed to Europe - just as winter beckons!

The UK also faced an extremely challenging week as the GBP recorded its lowest level against the greenback since 1985.

The US dollar continued its path of destruction as several US Fed officials lined up through the week to emphasize the need to continue on its aggressive trajectory of rate hikes.

What does that mean for the Rand, you ask?

Well, Thursday's local unit performance likely gives us an answer...

...the hawkish comments by the US Fed saw the Rand get steamrolled to breach R17.50/$.

And as we tick closer to Jerome Powell's next monetary policy announcement on September 21st, we expect further choppy waters for the local unit...

And then in other news:

• China had reason to cheer this week as inflation eased slightly in August, although the full recovery of the world's second-largest economy still remains hostage to the CCP's strangling lockdown measures.
• In her first major action, the UK's newly appointed Prime Minister Liz Truss announced her intentions to freeze domestic fuel bills for 2 years in an attempt to help ease the burdens of a UK cost of living crisis.

  The announcement was received with mixed emotions as investors and analysts were not fully sold on the idea, with many stating that while it would certainly benefit households, it would not do anything for the country's currency.

• After weeks of capitulation, cryptocurrency investors finally received some welcomed gains. Bitcoin surged by 8% early Friday to breach the psychological $20,000 level and led the broader crypto market's recovery for the week. And Ethereum jumped 5% and is currently changing hands at around $1,700.

  The bullish price action helped to propel the cumulative market capitalization of all cryptocurrencies back above the $1 trillion mark.

After a rough week, the local unit steadied toward the back end to close off Friday trading at R17.30/$, R17.34/€, and R20.01/£...

...still nothing to write home about.

With the ever-growing consensus of ongoing rate hikes from the US over the foreseeable future (even at the cost of some economic pain), the big question for the Rand remains:

What is the plan to counteract those hikes? Right now, it seems like there isn't one!

This is just one of the many questions many were left with as we headed into the new week...

The Week Ahead (12-16 Sep 2022)

As we head into mid-September, we have some potential market triggers, some of them being:

• UK - GDP YoY, Unemployment rate, Inflation Rate YoY
• US - Inflation Rate YoY, PPI MoM
• SA - Retail Sales MoM

Next week's inflation rate figures, especially from the US, are set to take centre stage where positive results are likely to bolster beliefs of a recession evasion.

Until then, local unit investors will be forgiven for being reluctant to buy anything in the current macro-environment where inflation is still soaring, domestic growth is weakening, and central banks are tightening.

Until next week - and expect the unexpected!

P.S. We'll be relying on our Elliot-wave based forecasting system to help us through this difficult time and give us the information we need to make educated, informed and rational decisions.

You can too!

I look forward to helping make your forex experience more profitable with less time, stress and effort

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To your success~

James Paynter