Welcome to this week's Rand Review, where follow the local currency in a whipsaw week of big swings...
...which started well, then turned really sour...
...but finally ended up not too bad for the week after all.
And overall (while we had a few nervous moments initially), this is pretty much what we expected based on our Rand forecasting system - as you will see...
...in a week that was marked by the fallout from the ANC's setback in the elections, poor local economic data, and geopolitical tensions increasing significantly internationally.
In a few ways, it was a week to remember - so let's dive in and unpack it!
Key Moments (3-7 June 2024):
These were some of the major headlines over the last five days:
- SA Data Disappoints: Manufacturing PMI, Vehicle Sales, GDP and Current Account paint a not so rosy picture.
- Election Result Jitters: The market looks on nervously to see what sort of coalition government will result after the ANC's massive setback
- War Tensions Escalate: The Russia/Ukraine war has just hotted up a few notches following a red line being crossed.
The week opened with the Rand sitting around R18.83/$ after a fortnight of being on the back foot...
...but our update on the Friday was showing that it wasn't likely to be the week for the Rand to turn things around - at least not immediately, with our forecast on the Friday showing a move higher into the 18.99-19.26 area before topping out (see below):
(Click to enlarge)
But, as sometimes happens, our outlook was immediately tested, with the market initially dropping to test R18.70...
...then bouncing higher to hit R18.88/$ around SA trading open...
...but then somehow the Rand finally finding some real fight and pushing the market all the way back down to end the day around our invalidation level of R18.50!
Wow - quite a start to the week!
This came amid the market's focus on the ANC's massive loss in the election...
...and who they were planning to woo in order to form a coalition government, with the market concerned it would be the more radical EFF and MK parties over the more conservative and pro-capitalist DA...
...and it seemed some of this risk had been already factored in ("buy the rumour, sell the fact"), which could have accounted for the Rand's recovery.
But on the flip-side, ABSA Manufacturing PMI came in well below expectations at a dismal 43.8%, from 54% the previous month...
...and to add to the woes, Total Vehicle Sales dropped to just 37.1k - the worst levels in two and a half years!
So, a really magnificent effort from the Rand...
...but had it actually turned the tide?
Unfortunately not, as Tuesday saw a reversal of fortunes, with the market losing over 25 cents to end the day languishing back around R18.75 per US$...
...of course, sentiment was not aided by the news that GDP growth had dropped below zero, registering -0.1% QoQ versus the previous quarter's slight growth of 0.3%.
And unfortunately Wednesday did not fare any better as the Rand marked time until the SA open, and then simply fell out of bed as it pushed up to within a couple of cents of R19 before closing out in after-hours trade at around R18.90/$.
On the local politics side, the SACP and Cosatu (the other parties to the Tripartite Alliance) entered the negotiation ring, calling on the ANC to exclude any coalition government with either the DA ('the main enemy of the ANC) or the 'anti-revolutionary' for that is Zuma's MK party...
...giving some insights as to who the real drivers are in the alliance, despite not being on the ballot...
In other news:
Things seem to be getting hotter in the Russia/Ukraine conflict as both the US and Germany have allegedly given Ukraine permission to strike targets in Russia using weapons supplied by them - something that Putin has said he would regard as crossing a red line by NATO.
This was followed up by Russia declaring the US an 'enemy state" for the first time and threatened to arm enemies of Western nations supplying weapons to Ukraine...
...with reports too of Russia sending some warships to Cuba for some exercises.
This is quite some escalation - and it is almost as if there is no desire to defuse the situation?
Getting back to the Rand, Thursday saw some the Rand initially bumping around in small window. but that did not last long, as the market pushed higher around midday...
...managing to test just above the R19 level but there must have been some significant interest from sellers at these levels, as the market got pushed back down to around R18.87 before closing out the day around R18.95.
This came with the news that the ECB had cut rates by 25 basis points - the first rate cut since 2016.
And in another dismal week for SA economic data, the Current Account remain firmly in deficit territory at -84.6k for 1Q2024.
Finally, on Friday, the Rand managed to find some strength, as it gained all of 20 cents touching R18.75 per US$ in the early afternoon...
Of course, Friday was time for Non Farm Payrolls report - a biggie in terms of triggers - which showed 272,000 nonfarm payroll jobs were added in May, significantly more additions than the 180k expected by economists.
But on the flipside, the unemployment rate rose to 4% from 3.9% the month prior.
(Again, we are not convinced these numbers reflect the true story, with many taking on second and third jobs just to being in more money to overcome inflated prices).
Anyway, this seemed to give the Dollar a bit of a boost, which resulted in the Rand giving some ground back to end the week around R18.87 - several cents weaker than where it had opened.
And, surprise, surprise, as you may have seen...
...allowing importers, investors and exporters to take advantage of
favourable levels in this whipsaw week.
Another satisfying week from our and our clients perspective!
And that was the wrap!
The Week Ahead (10-14 June 2024)
So as head into another week of June, with election uncertainty still a bit up in the air, not only in SA but in Europe, where voters gave France's Macron a stunning (and not unexpected) back-hander over the weekend...
...seems the year when the those in power the past few years are being given a big vote of no confidence!
We have a week with a few potential triggers from this, the main one being the Fed's interest rate decision
- SA: Manufacturing Production
- US: Manufacturing PMI, Non-farm Payrolls
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!
to make the RIGHT decisions...and take the RIGHT action....at the RIGHT time!
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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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