And welcome to another update of our Weekly Rand Review!
What a turbulent week of trading we've witnessed!
From the Medium-Term Budget Framework to shocking US employment numbers, markets have given us enough twists and turns to keep even the most seasoned traders guessing. The Rand's path has been anything but straight as markets digested a mix of local fiscal plans and global data surprises.
This week brought us Finance Minister Godongwana's improved deficit outlook, surprising US jobs data, and more market swings than a pendulum. Through it all, the Rand showed its typical resilience, though not without some dramatic moments.
So, get comfortable, and let's unpack what's been moving our money.
Key Moments (28 Oct - 1 Nov 2024):
Some of the more important headlines and events over the past week:
- SA Budget Review: Wider deficits and higher debt
- US Mixed Data:GDP slight growth offset by NFP jobs shocker
- Inflation Eases: SA and Euro inflation drops further
GNU tensions flare over Ramaphosa's Russia stances
Monday: A Choppy Start
The Rand opened the week at R17.59/$, with markets already positioning themselves ahead of Wednesday's crucial budget speech.
Throughout the morning, we saw steady pressure build, pushing us up to R17.70/$ by midday. But it was the afternoon session that really got interesting...
A sharp spike took us to R17.77/$ before we pulled back slightly to close at R17.68/$...
...with the day's moves suggested nervousness ahead of the big event.
Our latest forecast was indicating a move up into the R17.86-18.10 target area - and with the week's political and economic calendar ahead, this was looking increasingly likely...
(enlarge here)
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It was going to be an interesting week if this played out.
Tuesday: Another Nervous Choppy Day
Opening at R17.68/$, markets were caught between local budget anticipation and upcoming US data.
The morning session saw choppy trading around the R17.70/$ level before pushing higher to hit R17.74/$...
...but interestingly, we couldn't hold those levels, as the Rand found some resilience, clawing back to close at R17.64/$ as traders positioned themselves ahead of the rest of the week.
Wednesday: Budget Day Drama
And then came the big one!
Opening at R17.64/$, early trade was cautious with the Rand drifting sideways.
But as Finance Minister Godongwana took to the podium, things got interesting, as the Rand initially strengthened sharply to R17.53/$
...but by mid-afternoon, the tide had turned dramatically, spiking up to R17.76/$ as traders digested the full implications of the budget before closing out at R17.64/$ - right back where we started again!
Apart from local news, there was also GDP releases out of the US and Eurozone, with the former showing 2.8% growth YoY and the latter at 0.9% YoY, both below expectations.
Budget at a Glance
In summary, in the first budget review for the GNU, this is what it came down to:
- Budget Deficit Projections:Treasury forecasts a budget deficit of 5.0% of GDP for the current fiscal year, higher than the previous estimate of 4.5%. For the next fiscal year, the deficit is projected at 4.3% of GDP, up from a previous 3.7%.
- Debt Stabilization and Revenue Challenges:Gross debt is expected to stabilize at 75.5% of GDP by 2025/26, but revenue collection faces challenges due to reduced fuel levy and VAT collections, placing pressure on fiscal resources and necessitating difficult fiscal decisions.
- Economic Growth Forecasts:Economic growth for 2024 is now projected at 1.1%, down from earlier estimates of 1.3%, expected to improve slightly to 1.7% in 2025, buoyed by better electricity supply and improved investor confidence.
- Infrastructure Investment Focus: The government aims to drive economic
growth through infrastructure development and is looking to enhance private sector participation, exploring alternative financing mechanisms to boost public infrastructure projects.
Thursday: Inflation and Trade Positives
Opening at R17.64/$ (once again), the morning saw tight ranges before local and Eurozone inflation data caught the market's attention, with worse-than-expected EU inflation print of2% (vs 1.9% forecast)...
...while local PPI came in at just 1% YoY (vs 2.5%), which seemed to trigger a push higher to R17.75/$, but then we had the Trade Balance with a much better showing than forecast, coming in at R12.8bn vs previous R5.1bn....
...which seemed to trigger a reversal, with the market closing notably lower at R17.57/$, as markets positioned for Friday's crucial US jobs data.
Friday: NFP Shocker!
Just when we thought the week's drama was done, Friday delivered its own fireworks.
Opening at R17.57/$, early trading was cautious.
But then came that US jobs bombshell...
...with just 12,000 new jobs versus 110,000 expected - the worst in 4 years, as the economy was hit by both storms and strikes!
This coming just ahead of US elections was not the kind of data release that the Democrats would have enjoyed!
The US dollar's initial weakness saw the Rand strengthen to R17.51/$...
...but in a typical "Friday afternoon reversal," we ended up closing at R17.66/$, weaker on the day (and the week) despite the soft US data.
Volatility & Risk Analysis
So a much less volatile week than last but still some significant risk:
- The Average Daily Range for the week was 17.9c or 1.0% - which means that for every R1 million exposure the daily fluctuation (potential profit or loss) on average was R17,900 every day
- The Weekly Range (total fluctuation) from the highest point to the lowest point was 28c or 1.6%. This means by taking action at the right time you could have saved a R28,000 for every R1 million exposure...
...while not doing so would have meant a forex loss of R45,000!
This highlights the importance of having an objective system for timing your hedging and conversions to enable you to:
- Mitigate potential losses and
- Take advantage of favorable market movements.
And as you can from our forecast prior to this past week's move, just this one forecast could have meant all the difference in helping you make the right decision at the right time - at a fraction of the cost of your risk!
The Week Ahead
This week the market, while there are some data releases that could be of importance, all eyes will centered on one of the most important of US elections. Last week we mentioned a bigger Republican turnout in early voting...
...and today the Trump campaign released a memo showing a much lower early vote turnout for the Democrats in key swing states than in 2020, which traditionally has been strong for them.
And betting sites Polymarket and Kalshi still show Trump well ahead...
...yet strangely, mainstream media polls show it is neck and neck...
So, some interesting times ahead!
This promises to be a humdinger of a week that will likely cover the news for , which it already has with glitches and anomalies being widely reported with both ballots and machines, and delayed results already been expected in key swing states...
...isn't it strange these key counties haven't fixed this problem after 2020?
Expect a week of drama, and volatile markets with it!
Keep focused - and trade wisely
To give you a little helping hand, feel free to take our Rand forecasting service for a test-drive!
This will give you access to the same charts we are to give us and our clients the likely direction of the Rand - ahead of time, enabling you to make educated and informed decision.
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This will give you access to the same charts we are to give us and our clients the likely direction of the Rand - ahead of time, enabling you to make educated and informed decision.
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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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