A really choppy week for the Rand, as it battled the varying fortunes of the US Dollar which once again traded weaker...
It is a familiar story of the Rand being thrown about like a ragdoll, while global events trigger sentiment changes.
Right now, events in the US are major triggers that we keep a watch on.
But overall, sentiment goes wider than just one event or one concern… and thankfully, our Elliott Wave based forecasting system keeps tabs on the patterns, rather than the individual events.
This week involved some really big events, as we saw the ZAR test well below R17/$, before breaking back above...
...only for the market to turn on it's head on Friday, once again...as predicted!
Join us for a deep dive into all the action!
There were plenty of newsworthy events across the 5 days, the majority on the global scale:
- Fed's Monetary Policy - the much awaited Jerome Powell statement on the way forward for America's Federal Reserve provided some insight into the future of economics...
- Pension Funds - much awaited news from the SA government as we approach the amendment of the Pension Funds Act...
- Hurricane Laura - the Category 4 hurricane pummelled Louisiana, leaving a wake of destruction in its path
- American Rioting - while on the other side of America, the ongoing riots and looting continued, with little being done by local government to maintain law and order
- Republican National Convention - all eyes were on the Republican's convention as President Trump accepted the nomination and a countdown to the November elections begins in earnest.
So, as the big week kicked off, the Rand was on the front foot, having ended the previous week strengthening toward R17/$.
All eyes were on Thursday - Fed Chair Jerome Powell was due to give some insights into the Fed's monetary policy for the coming years, in a delayed announcement due to the pandemic.
It was between a rock and a hard place for the Fed, as interest rates have not recovered since the last financial crisis...
...meaning they don't have much in the armory as strong a toolkit to help kickstart an economy.
Now, it looks like the US is going to be stuck in a zero or close to zero percent interest rate situation for the foreseeable future.
Some of Bloomberg's expectations were for interest rates being where they are still in 5 years time.
The Fed's goal for the last 10 years has been to target the 2% inflation level, as being healthy for the economy (we have a different view on this) - but this has been a struggle, and while the last few years have been better, it remains a battle to maintain. When Powell's speech finally rolled around on Thursday, he maintained that they were going to putting more emphasis on boosting employment and allowing inflation to rise above the Fed’s 2% target during economic expansions, keeping rates lower for longer. Economists interpretation was that the "Fed will allow the economy to run hot before applying the interest-rate brakes. It means the first increase in interest rates may not come into view for many years."
It is going to be interesting to see how the Fed (and other central banks) juggle the different situations while walking the tightrope, as we go into the coming years.
Don't be surprised if the whole lot come tumbling down - and a DEFLATIONARY period is what we see (directly opposed to what the Fed and other central banks want...but at this stage, out of their control).
And it is not the Fed (or other central banks) that sets interest rates, but the MARKET - as shown clearly in this blog post.
Now, onto the Rand...
Before this all happened, our forecast was released on Wednesday with the market at R16.87, showing that we expected the market to still take another dip stronger against the Dollar, into the R16.65-16.22 area. If we were to push higher to hit R17.11 and above, then our outlook would be invalidated, but while that level held, we were expecting to see the Rand strengthen... (see below the forecast - click to enlarge)
It was going to be an interesting few days...
And interesting it was, as Thursday provided highly volatile trade for a range of markets, as Powell's speech created a lot of hype around all markets, whether forex, metals, cryptocurrency or stocks.
But as quick as it came, it was gone, and markets calmed back down again after his speech...very typical of what was hyped up to be a major event, and while it did create some volatility, it ended in a big to-do about nothing.
As for the Rand, in amongst all this, it had traded stronger versus the Dollar through Monday and Tuesday to test as strong as R16.71/$ - comfortably the strongest level of the month.
However, that didn't last for too long, as the Dollar found support there, and we saw the Rand tracing up over R17/$ again after Powell's speech, testing very close to our R17.11 invalidation level before falling back...
And then in other news...
- Locally, there was finally some updates on what Saffers can expect in the amendment to Regulation 28 of the Pension Funds Act. Deputy Finance Minister Masondo assured that the amendment would purely be to broaden the scope of investments trustees of funds can consider. "There is no intention from government to oblige retirement funds on how to invest, be it in government infrastructure or any other projects or investments," Masondo said. After much speculation on this point, we will have to see if this is the final say on a subject so many are concerned about. All we can say is, do not be fooled - this is just one step closer to their Communist objective of gaining control of these funds for state purposes.
- Also locally was inflation data, showing that the consumer price index (CPI) rose to 3.2% y/y in July from 2.2% in June, above market expectations. Economists felt that this left the door open for the SARB cut rates further this year, which would be an interesting turn of events.
- Back on the global stage, the US suffered more calamities as Hurricane Laura pummelled Louisiana as a dangerous Category 4 tropical storm. Incredible predictions of a storm surge of around 6 metres meant that evacuations were essential. While on the other side of America, more rioting and looting broke out in Kenosha, Wisconsin, prompting Federal forces to come in and restore law and order. This is certainly a critical few weeks and months, as we head toward the US election in early November. Markets are on edge, and we don't expect that to stop anytime soon...
So...back to the Rand.
Friday brought good news - and a whole bunch of it!
The Rand reversed right at our invalidation level, topping out at R17.1070...
...and by the close on Friday, had tested below R16.60!
A full 50c turnaround in just a few hours!
It was right in the middle of our target area from Wednesday's forecast, and it meant we were ending the week off on a high note, along with all the South African importers.
And that was the wrap...!
The Week Ahead (31 August - 4 September 2020) |
As we look to the week ahead, we have several events, including the notorious trigger - the US nonfarm payrolls:
- SA - Balance of Trade, Current Account Q2
- USA - Trade Balance, Jobless Claims, Nonfarm Payrolls
- UK & EU - Consumer Price Index, Inflation Report
But there is also a lot more going on both locally and globally, and again, most eyes will be on the US, as the countdown to the election begins in earnest, with the fallout from Hurricane Laura and continuing riots and anarchy sparked by the Marxist BLM movement, all amidst a pandemic that is keeping the economy hamstrung.
A lot of concerns and uncertainty prevails - which means more volatility!
Where does this leave the Rand?
The market has entered our targets so we will be watching the price levels to confirm our preferred outlook for a bottoming out soon, based on our Elliott Wave based forecasting system.
It is likely to be an interesting week once again.
When the market is highly volatile, it is extremely difficult to make rational and educated decisions - which most often mean doing EXACTLY the opposite of what your emotions are telling you.
And that is why we continue to 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.
You saw how this helped us and our clients keep ahead of the game, while many were caught off-guard ....AGAIN!
I sincerely do trust that YOU were not one of them...
...because this week is not likely to be any different!
We are watching 2 key levels the next couple of weeks, which will confirm our longer term wave counts.
(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
