Welcome back to the Weekly Rand Review, your trusted source for the latest insights and movements of the South African currency.

This week, we bring you a some hope amidst a stormy sea of challenges.

After enduring a prolonged period of turbulence, which encompassed power cuts, geopolitical tensions, and a palpable erosion of investor and consumer confidence, the Rand finally caught a much-needed break...

...which took many by surprise...

...but if you had been reading closely (and seen our forecasts), you would have understood that the extreme in negative sentiment was a signal that the market was poised for a reversal.

With a newfound vigour, the local unit bounced off the ropes, and embarked on a remarkable recovery, reminding us again of its ability to bounce back. In the past month, the Rand bore the weight of uncertainty and endured the harsh consequences of a volatile economic landscape…

…but as we delve into a review of last week, we witness a shift in the tides - a welcome change that breathes optimism into the hearts of investors, businesses, and everyday citizens.

The big question now is, of course, can it follow through?

A rare week of positivity for the Rand. Here’s what happened.

Key Moments (5-9 June 2023)

Here's what made our headlines last week:

• SA Dodges Recession - - In the face of the most severe power cuts and stubborn inflation, the local economy managed to avoid falling into a technical recession, expanding by 0.4% in Q1, as data on Tuesday showed.
• Improved Accounts - - The South African Reserve Bank released data on Thursday showing that the country’s current account deficit for the first quarter of 2023 had narrowed to 1% of the total gross domestic product.
• BRICS Summit Changes - - The Rand received a boost in the week as reports began to circulate that the country is in the process of reconsidering its hosting of the BRICS summit later this year, with China emerging as the likely new destination.

Safe to say, May was not a good month for the Rand, as the local unit shed as much as 7% to the greenback and came within a whisker of breaching R20/$, which added to the bleak outlook as the country’s rolling blackouts showed no signs of fully abating just yet, and business confidence continued to dwindle. Of course, last week's improvement was partially attributed to positive data points in the week, as well as how disproportionally undervalued the Rand has been against its emerging market peers…

…but that is typical rear-view mirror looking economist talk, looking reasons for the Rand's move after the fact - which frankly, is useless to anyone.

But what if you could have known ahead of time this was about happen?

Well, you could have...

This is what our prediction for the next few days was telling us on the Wednesday prior...

...that the market was expected to top out below 20.06 before falling sharply.

Some surprises were clearly ahead for the market...which we and our clients could anticipate and prepare for beforehand - not after the fact, when it was too late.

Well, it certainly proved to be a week of note!

The Rand got going at R19.53/$ on Monday morning following a buffeting at the end of the previous week, stemming from the news that SA would provide diplomatic immunity to Russian delegates (particularly Vladimir Putin) at the BRICS summit in August this year…

…and the Reserve Bank’s subsequent warning about the potential threat of sanctions, which came shortly after.

However, in contrast to the recent trend, the Rand was headed in the right direction for a change early last week as reports began to emerge that SA is considering moving the BRICS summit to China, or potentially hosting the event online.

To recap:- Following US accusations that Russia received arms in SA, the Rand tanked from R18.65/$ to R19.47/$ in the space of 24 hours less than a month ago.

The change in policy direction last week, though, and the resulting easing of concerns over South Africa’s alignment with Russia, was a trigger that gave the local unit a much-needed boost down to the mid-R19.20s by the end of the day.

The positivity continued into Tuesday as well, as Stats SA published its data results showing that SA’s GDP grew by 0.4% in Q1, avoiding a technical recession following a 1.3% decline in the final quarter of 2022.

Manufacturing continued to be the main growth driver, showing a jump in output of 1.5% which added 0.2 of a percentage point to the headline figure.

Year-on-year, manufacturing increased by a solid 3.4% from April 2022, while month-on-month growth was recorded at 1.9% and 3.7% in February and March, respectively.

South African exports were buoyant in Q1 as well, expanding by 4.1%, driven mainly by increased trade in base metals, food and beverages, and machinery and equipment. However, while a technical recession may have been avoided (for the moment), the ongoing energy crisis has been a thorn in SA’s growth expectations.

Despite substantial fiscal support and the appointment of an electricity minister, Eskom has still not managed to improve the operating efficiency of its power plants, as the electricity availability factor continues to hover at an alarming 55.9% at the start of June…

…but last week did bring with it some rare positivity on the energy front.

From early in the week, Saffers had some reprieve from the harsher power cuts they’ve become accustomed to, with Eskom suspending daytime loadshedding.

Music to Saffer's (and investors') ears!

The impact of the reduction in loadshedding was evident as it triggered some positive sentiment in the market, and the local unit continued to take back lost ground overnight and edged closer to the R19/$ mark on Wednesday morning.

Just when sentiment is at its very worst...

By midday, the Rand reached the psychological barrier briefly as the dollar weakened and investor appetite improved on the ongoing easing of power cuts…

…but it was only a brief visit as the one piece of negative data results for the week emerged.

A survey conducted by RMB and compiled by the Bureau for Economic Research (BER) showed that the local business confidence index dropped by 27 points, following a 36-point fall in the previous quarter.

The retail sector was the most downbeat, declining by 14 points and underlining the worsening business conditions and pressures on overall profitability. Retail store owners have been put through the wringer over the last year as they try to deal with price inflation which has caused consumers to tighten their belts…

…while also enduring higher interest rates and increased costs (due to the reliance on backup generators). The harsh reality is that it still remains hazy as to what may cause a meaningful lift in confidence over the short term, especially as loadshedding is expected to worsen in the coming months.

But by Thursday forenoon, the Rand was changing hands at a shade below R19.10/$, ahead of the SARB’s update on the state of the country’s current account. Rekindling the upbeat mood for the week, the results showed that SA’s strong exports narrowed the country’s current account deficit in Q1 to R66.2 billion or 1% of total GDP.

A surprising result, considering the 2.3% of GDP level it was at in Q4 of 2022 and in the wake of intense loadshedding through this year, but the weaker Rand played a significant in this..

According to the data, SA’s trade surplus jumped from R34.2 billion in Q4 last year to R103 billion in the first quarter of this year as the value of goods exports increased more than that of merchandise imports.

The start of a mini-comeback?

After breaking back below R19/$ for the first time in almost a month the day before, the Rand found its feet again on Thursday off the back of the positive current account results…

…and managed a sustained break below the psychological barrier to end the day in the mid-R18.80s.

Before we close out, let’s take a look at some other news from around the world:

• Official data released in the week showed that the 20 countries that share the Euro as a common currency fell into a mild recession in Q1, with high inflation discouraging consumer spending. In the first three months of 2023, economic output in the Eurozone decreased by 0.1%, following a drop of the same percentage in Q4 of last year. The broader EU territory, however, avoided the downturn, recording an increase of 0.1% over the same period.
• Footage captured in the week showed that China and Russia conducted a joint air patrol over the Sea of Japan for the sixth time since 2019. The four Russian and four Chinese military aircrafts entered restricted airspace, causing Japan and South Korea to scramble fighter jets in response. China’s increasing military assertiveness comes shortly after military drills were conducted by the US and its allies, Japan and the Philippines, in the South China Sea a few days earlier.

As the end of a positive week for the local unit approached, Eskom allowed Saffers the privilege of power once again on Friday, which helped the Rand further strengthen overnight. The local unit opened trade on Friday at R18.85/$ and continued to gain through the day to close a much-needed week in the sun in the mid-R18.70s.

And lo and behold, a week of big gains for the Rand - in fact, the best in about 3 years!

The Week Ahead (12-16 June 2023)

A shorter trading week locally, but there’s no shortage of big events:

• SA - Mining Production (MoM), Retail Sales YoY (Apr)
• EU/UK - UK Employment Rate (Apr), UK GDP YoY (Apr), EU Interest Rate Decision
• US: Inflation Rate YoY (May), PPI MoM (May), Fed Interest Rate Decision, Retail Sales MoM (May)

If nothing else, last week was the perfect example of how when a markets has extreme negativity and is expected to worsen by almost everyone (including our 'expert' economists)…

…we are reminded again exactly what drives the direction of a currency - mass human emotion, which is neither logic or rational!

A week ago, if you told someone that in under 10 days, we would have no load shedding during the day, and that the Rand would make a recovery of over 120c, you’d likely have been laughed at!

Yet here we are...

When we’re in the midst of disaster, it can be difficult to see a rational way out, but that doesn’t mean that the market works according to the same logic - it doesn't. And it also doesn't mean there is no predictability about it...because as emotionally driven humans, we are predictability irrational!

Thankfully we have our forecasting models for exactly this purpose, to help us navigate the difficult times and spot those potential big moves.

And they can help you too!

See you next week!

Please 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.

Simply use the link below to get access now. No charge. No card. All yours to trial for 14 days.

If you have any questions or feedback, please leave them below.

To your success~

James Paynter

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