Choppy, undecided, unsettling and dangerous...
A rather unsettling week sure did not help settle any investors nerves, as we saw no stability in the markets once again.
It was a week packed with events...
...from interest rate decisions to Obamacare repeal
...to US Trade Balance & Jobs data and to Non-Farm Payrolls
And as always, the Rand did not respond as expected to any of these events, and we were left to purely trust our forecasts...
As the Rand bounced from event to event, clearly taking strain over comments from the finance minister's advisor as he suggested a taking up of arms to achieve Radical Economic Transformation...a direct reference to civil war.
So a lot of negatives...
...but there were positives as well, as the Rand closed off the week with an absolute blast, strengthening 30c in a day!
Lets review how it happened.
How It Happened (1-5 May 2017) |
Another week gone by, and another starting
Monday had a slightly different feel to the average one - for the second time in a short few weeks, much of South Africa enjoyed a break from the daily duties.
It was the 1st of May, Worker's Day, and already the first third of the year was behind us. A busy week was ahead, and despite it being only 4 days worth, it was packed with events.
As for us though, with our subscribers hollering, we didn't have a choice but to do a forecast!
The outlook (see below - click to enlarge) showed the market sitting at R13.3686 by the time we did our forecast on Monday morning, and the expected market direction was for it to be rising before topping out.
Click to enlargeSouth Africa had recorded an R11.4bn trade surplus on Friday for the month of March, a nice positive continuing the trend of strong trade inflows into SA.
As well as this, fears were mounting over the US Government shutdown. As expected, US lawmakers reached a $1trn budget deal, which will keep the economy ticking until September. This was said to give the Rand some strength and positive sentiment...
But after all speculation and the like, it was time to get into the nitty gritty of the week.
And for the course of Monday, the Rand endured some torrid choppiness. It looked completely unsettled, and it was clear that a relaxing holiday was not being taken by the markets!
By mid evening, the market had a range of over 18c for the day, and had reached a high of R13.43/$...
However, late on Monday evening at that high for the day, the market turned again and began strengthening.
Tuesday came...and now it was time to see what the lay of the land was.
Had the market topped out? Or could we expect another stab upward?
News was circulating (as it always does) as to the difficult times ahead for currency traders.
Political pressures intensifying in both SA and the USA don't do any good to the markets. With the Fed Rate Decision, Non-Farm Payrolls, French election upcoming, and then the UK election early next month, the ticking time bomb was gaining strength.
To make matters worse, petrol was confirmed to be going up by almost half a Rand...
....and SA's Purchasing Managers' Index fell to 44.7 in April - a sharp drop below the average of 51.9. To put this figure in simple terms: anything below 50 indicates a contraction in the economy.
So...dark times for South Africa economically...
But the Rand soldiered on!
And for the most part of Tuesday, the Rand managed to keep fairly steady by its standards, maintaining a smallish range for the day.
In the evening it lost some ground, but by the time business opened on Wednesday morning, it sat at R13.30/$.
The big event for the day was the Fed Rate decision.
This has wreaked havoc the markets on multiple occasions, so the build up is always pretty big.
Apart from that thought, it was another quiet day on the events front, as the the Republicans began gearing up for their ObamaCare Repeal vote the following day...a major landmark would be reached for President Trump if this were to go ahead.
Whether for good or for bad, it would be a major victory for the GOP.
The Rand kept stable through until the interest rate decision, and when it did come through, things took a slight turn for the worse...
The Federal Reserve held its key interest rate steady Wednesday night, and slightly downgraded its economic outlook but downplayed recent weakness...firmly leaving the door open to a June hike.
The Rand did not take to this kindly, and weakened throughout the evening, eventually getting to R13.51/$ by the time our forecast came through the following morning...
Thursday morning had dawned, and it was time for our normal update to the forecasts.
The outlook (see below - click to enlarge) showed the market at R13.5197/$, and further weakness lurking...a target area of 13.70-13.89 in the next few days was what was expected.
Click to enlargeNow to see how this played out in conjunction with US Trade Balance, ObamaCare Repeal and Non-Farm Payrolls...
Despite some consolidation during the morning, the market began to weaken considerably...
...throughout the afternoon we saw it steadily climb higher and higher, closer to our target area as predicted.
US Trade Balance figures came through showing a narrow improvement, and the Dollar seemed to like this all the more. Then ObamaCare got officially repealed by a very small margin, and the one way traffic continued!
The Rand weakened as far as R13.67/$ on Thursday night...the tables were turning as it neared our forecast target area.
And then Friday...
Initially we saw the market weaken even further, moving into our target area by touching R13.71/$...
...and then, for no apparent reason, the market turned.
Before Non-Farm Payrolls...
...before US Jobs Data
Confusing, yet that is what happened - a perfect topping out in our target zone.
And soon we were on to Non-farm payrolls - always the dangerous dark horse of the pack came to the fore once again.
And for once - the nemesis became a friend to the Rand, as it appeared to push the market stronger!
The Rand ended the day on a great note as it closed off the week nearing R13.40/$ on the back of its often enemy, Non-Farm Payrolls! The dollar took a beating toward the end of the week, with US Jobs numbers coming through at their worst levels in 10 years once again.
The Week Ahead (8-12 May 2017) |
As we look into the crystal ball for the next week (just kidding - we don't have one of those), we see a number of market events which are worth mentioning:
- The French Election results (with Pro-EU Macron’s victory easing fears of a Frexit)
- BoE annoucements
- US Retail Sales
And a few other nik-naks which are worth watching out for. If you would like to get our analysis on each of these events each week, please let us know - we offer this as a service to our clients.
As for what the coming week brings...that's a difficult one.
Once again, the market has closed off on Friday at a critical level.
It has cleared topped out, and the trend of decline has now slowed.
It is a situation which requires us to really put some effort into a complete analysis of the market, giving our clients an updated view on what to expect.
If these market swings and moves are confusing to you, don't forget about our free email sequence called "Rand Secrets"
Many of our clients have found it invaluable in terms of understanding markets.
Let me know if you are interested in receiving it.
I would love some feedback on anything forex related. Please do hit reply if you have questions or comments.
All the best,
James
