Welcome to another issue of your favourite Weekly Rand Review...
...and what a week it was, with many surprises, from currencies to major international geopolitical shifts both domestically and abroad, including events that could have a major impact on the US and the greenback.
And through it all, the Rand had one of its best runs after a torrid few weeks, as it turned things around nicely.
So, in another week to remember, let's try and unpack it!
Key Moments (10-14 June 2024):
In some major headlines over the last five days:
- SA Manufacturing Surprise:SA's Manufacturing Output surged to its best in over 4 years
- De-Dollarization Initiatives: TThe week was market by some announcements that could impact on the US dollar's dominance in the coming years
- SA Political Shake-up: In an unlikely marriage, the ANC, DA and IFP have agreed to form a government of national unity...
OK to get stuck in...
The Rand started out the week at its weakest in many weeks as it fluttered a few cents below R18.90 to the US dollar...
...with domestic politics still in a state of flux, as the ANC continued discussions with opposition parties regarding a potential government of national unity - a significant shift since they gained power 30 years ago...
...it was going to be an interesting week!
After tracking sideways, the local unit did a brief test above R18.90 after the SA trading desk opened, but then turned things around immediately as the USD/ZAR market dropped more than 20c over the next 3 hours...
... and then managed to hold on to the advantage to end the day just below R18.70/$ in after-hours trade.
Tuesday saw the Rand give back some ground in early trade, but again it managed to turn things around quickly during the SA session, as the local unit beat off any attempted Dollar fightbacks with aplomb to end the day a tad above R18.55 per USD.
This was helped along by a surprise improvement in Manufacturing Production, which surged a full 5.2% over the previous month - the most since November 2021.
So, not too shabby a performance just two days into the week!
But the Rand show wasn't over yet...
Wednesday dawned with every one's eyes on the US, with the Federal Reserve's interest rate decision...
Again, the day started out with the Rand on the back foot, losing 10c into early afternoon to test R18.65/US$ ahead of the rate decision...
...but the local unit had kept its best for the third round!
Before the news came out that the Fed had decided to keep rates unchanged, the Dollar took a knock with US inflation numbers showing a YoY increase of 3.3% - slightly lower than forecast, but still above the Fed's target rate...
The Rand took full advantage as it bounced back with a counter-punch of note, pin-dropping around 25c in the following hour or so...
...and then after a brief pause, it continued to push how the advantage to drive the market all the way to R18.29 ahead of the Fed's announcement...
...which put some spark back to the Dollar, as it managed to claw back a few cents to end just above R18.35!
How quickly things can change in just 3 days of trading - an improvement of almost 60 cents!
But for how long could the Rand continue this impressive run?
In other news, there were some geopolitical events that will likely have significant impact on the US dollar's global dominance:
- Firstly, Saudi Arabia has reportedly decided not to renew its 50-year petrodollar partnership with the United States expired this month, which now opens the door for Saudi Arabia to sell oil in multiple other currencies - instead of exclusively in U.S. dollars, which has historically being a major factor for demand for US dollars.
- And then, in another major announcement, BRICS representatives confirmed that they are in the final stages of its de-dollarization mission with a new international payment system, which will become a competitor for the current global reserve US dollar.
This will allow countries to make cross-border payments in local currencies and bypass the SWIFT system.
- Also, following further sanctions, Russia has halted trading in in dollars and euros on the Moscow Exchange, distancing itself further from the two major international currencies.
Of interest, sanctions imposed on Russia since the start of the Ukraine conflict were meant to harm its economy, but the opposite has happened, with this month seeing Russia become the fourth largest economy ahead of Japan.
Some interesting days lie ahead...
Getting back to the Rand...
After 3 days of Rand dominance, the pace changed somewhat on Thursday with quite a ding-dong battle taking place.
The market opened at R18.36 - and once again, we saw the market push higher initially to test R18.45/$, before the Rand, (as it done all week) managed to push back and drive the market down into the lower R18.30s...
...but the Dollar finally found some fight as the market reversed and bounced higher to test R18.53...
...before the Rand again managed to reverse fortunes pulling the market back to end the day around R18.40 to the US dollar.
And then it was Friday - and what could the Rand pull of the hat?
But, more of interest was the rabbit that the South African political circus had managed to pull out of its hat...
...while the EFF and Zuma's MK party joined forces to be the official opposition.
While this is quite some seismic shift in South Africa's political landscape dynamics, one can't but wonder how long this 'unity' can last between parties with diametrically opposing ideologies ...
As for the Rand, as was customary for the week, the market pushed higher in pre-SA trading to touch R18.50 per USD, but the Rand still had some oomph left and the two battled it out through the rest of the day...
...as the market bounced around in a tug-of-war in the R18.30/50 range.
But the Rand was not going to let a good week end on a bad note...
...as it had a final flurry lower to end the day (and the week) at a more-than-respectable R18.32 to the Dollar.
But it wasn't only the Rand that ended on a high note, as US stocks got a boost, with the S&P500 and Nasdaq registering new all-time highs...
...of interest though, it was not across the board, with the Dow Jones Industrial Index well off its recent peak - some bearish divergence on the cards?
And with that, we came to the end of another pulsating week!
The Week Ahead (17-21 June 2024)
Phew, so quite a week behind us on may fronts, but of course we still need to see how these all pan out.
This week we have a few events that could provide some potential triggers:
- SA: Inflation, Retail Sales
- US: Retail Sales
- UK: Inflation, BoE Rates Decision, Retails Sales
But - once again - we do not expect this rollercoaster ride to slow down anytime soon, so do not be caught up by your emotions...
Until next week!
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James Paynter
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