More losses and little respite for the weakening ZAR

It did not take the Rand long to return back to its bad old ways...

After such a good close out of last week, we saw everything come crumbling down once again, bring the USDZAR back to breaking point, testing R14 to the Dollar.

So, back to square one.

The Rand does not seem to want to shy away from some crucial levels, and we are keeping a very close eye on them...

...what with the Trade War, the Land issue heating up and much more, it is not surprising the volatility we are experiencing - but everyone was hoping for some kind of respite...

And that was not the only shocker, as Germany were knocked out of the Soccer World Cup in the group stages, making it the first time they have not progressed to the Round of 16 since 1938!

Let's get onto reviewing another tumultuous week.

Our forecast from the previous week Wednesday, 20th of June, gave us some idea of how we could expect the week to play out...

Click to enlarge

And here are some of the big events from this last week...

• Rand collapse...again - everything turned for the good the previous Wednesday. This last week was the same...only it was for the worse as the Rand crashed 40c...
• Land issue heats up - the debates have begun, and with the committee having already received 700 000 submissions, the action is about to begin
• Trade War - it continues to dominate the headlines, as we see the US, China and Eurozone all in amongst the heat of the battle
• Travel ban - President Trump scored a controversial win as the Supreme Court upheld his travel ban on a few Eastern nations
• Soccer World Cup - the enormous competition rolls on, as the teams began heading into the knockout stages over the weekend

Well...all in all, another shocking week for the Rand, only saved by a retracement right at the end of the week.

There was not much in terms of high-impact economic data or events during the week, and one would have expected that would have been enough to keep the Rand at bay...

...that is, economists would have expected that would have been enough

...such was not the case!

Once again, the first half of the week did not look pretty:

Especially Wednesday, as we saw a 40c crash from the local currency, erasing all of the previous week's gains...

This got the economists scrambling. On Thursday, headlines were filled with 'Ramaphoria is over, Rand downtrend set to continue' and 'Unstoppable USD keeps Rand under pressure'....

...only for the Rand to reverse over 30c of its losses in the next 2 days - whoopsie, economists...!

Emerging market sell-offs are known for damaging the Rand significantly, as it’s one of the most liquid EM currencies traded on the open market.

Unfortunately, when something like a trade war hits, it is not just the major economies involved who suffer...

...it is sometimes even more so the smaller ones, due to their huge dependency on major players in the global market.

And this Trade War did not appear to be anything different. It was causing ructions globally, before the effects had even been felt. And it looks as if this volatile climate could continue for some time yet, so do not expect this to disappear out of the news anytime soon...

Thankfully, the Rand did pull some of those losses back, giving some relief to consumers & importers...

With the Rand's slide over the last few months, it seems logical for borrowing costs to increase before the end of 2018 - in other words, the repo rate being increased. Reuters economists however, expected it to be kept stable at 6.5%, until at least 2020. That remains to be seen.

In other news...

• Investors sold close to R34.7 billion worth of SA bonds between January and June (the highest selloff on record) - some attributed the Rand's losses to this. When Ramaphosa is doing his utmost to drive R100bn in investment, it does not help when hot money investments are leaking out faster than the new ones are coming in...
• The Land Issue is coming to a head as the deadline set by parliament is nearing, and the public hearings have begun. So far, these have not gone off very smoothly, with very stark differences in views, and disagreement between different parties. Do not expect this to stop anytime soon...
• Trade War...it is still on everyone's lips, as we are awaiting the next steps to be taken by the US, China or Eurozone. Who is going to blink first? What is more important is what a global trade war would actually do to South Africa, and more importantly, how it would hurt South Africa. Moneyweb did a great article on this, which you can read over here
• Ramaphosa made some headway with his investment drive this last week, as a R10bn cash injection by Mercedes Benz into its East London plant was announced. This does not solve the bond flight we have seen, but it certainly will do something to appease investor worries and lack of confidence.
• The SARS inquiry got underway this last week, and already there have been some very interesting testimonies from persons like Pravin Gordhan, as some of the best kept secrets were finally uncovered...this one is going to be interesting.
• The sell-offs over the last week were not just in SA, but in China too as the Chinese Yuan endured the 10th straight day of its losing streak, there were warnings of financial panic in the country. Was this what Trump was wanting to happen to improve his bargaining powers?
• Fuel prices...should we even mention it? With oil still over $70, but thankfully a little lower than it has been. Despite that, it was not enough to reduce fuel prices with the weaker Rand. The AA announced that July's fuel prices will be higher, but not as high as they could have been, thanks to oil being a tad cheaper...

To close off the week, the Rand pushed lower, touching below R13.70, giving a little respite to all...and the rollercoaster just rolls on!

The Week Ahead (25-29 June 2018)

Well, not a great start for July, as for the second week in a row, the Rand lost ground first thing after managing to end the week clawing back from losses earlier in the week.

Is it going to be another week of Rand losses?

Well, there is certain to be be volatility aplenty once again, with several medium impact economic releases - and of course the biggie, US Non-Farm Payrolls later in the week.

So it would seem we need to buckle for the ride once again.

We are watching some key levels this week to confirm our wave counts - the next few days could be critical for the longer term outlook.

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Until next week...

James Paynter