Welcome to the Weekly Rand Review, your go-to source for the latest updates on the South African Rand's performance and the key events shaping its trajectory.

In a week dominated by significant global gatherings and economic indicators, the Rand managed to carve a path of gain against the US dollar.

The focal point of the week was undoubtedly the BRICS Summit hosted locally, bringing together leaders from Brazil, Russia, India, China and at home…

…while abroad, the Jackson Hole symposium was expected to hog the spotlight toward the end of the week.

In terms of economic indicators, the local scene provided interesting developments as well, with July's inflation rate in South Africa showcasing encouraging signs of improvement….

…which could have positive implications for consumers and the broader economic landscape heading further into the year.

Here’s your recap of last week's events.

Key Moments (21-25 Aug 2023)

These were some of the major headlines over the last five days:

• BRICS Summit -During the week, the BRICS consortium unveiled its expansion plans, encompassing six additional members that could signal the potential for positive outcomes for South Africa's economy despite lingering uncertainties surrounding the credibility of the bloc.
• Local Inflation - The latest consumer price inflation figures for July were released by Stats SA, revealing a significant decrease in headline CPI in July, bringing it comfortably within the target range of 3% to 6% set by the South African Reserve Bank.
• Jackson Hole Symposium - Jerome Powell was scheduled to deliver a speech at the symposium, and the market was preparing for a potentially hawkish tone in his speech, which might indicate the likelihood of additional rate hikes in the US.

Before we got into the week, we already had a good inkling where things were likely to head, with our short-term forecast issued late on Friday (with the Rand at R18.98/$) showing the outlook being for a sharp drop below R18.42/$!

It looked like an interesting week was ahead!

(Click to enlarge)

The Rand began the week at R19.01/$, slightly below where it closed the previous week.

With no major events on Monday, the local unit traded sideways in the early part of the week and edged back below the R19/$ mark ahead of the commencement of the highly-anticipated BRICS summit on local shores.

On Tuesday, the Rand saw an improvement as global markets regained their risk appetite, ahead of the commencement of the summit of emerging economies in Johannesburg.

In the build-up to the event, there had been lots of talk about the bloc potentially expanding as well as evaluating other ways to reduce their reliance on the greenback. One of the prospective advantages of the proposed expansion is to facilitate the chance for BRICS countries to engage in international trade using their respective domestic currencies.

As an example, in the case of trade between South Africa and China, avenues are being explored whereby they could settle transactions in yuan from their side and in Rands from ours.

Regarding talk of a BRICS currency...

...while there was widespread speculation before the summit that a common currency might be on the discussion table, Finance Minister Enoch Godongwana categorically dismissed the notion, affirming that it was not even informally broached.

The biggest news of the event, though, was the declaration that six new members will become part of the bloc starting from January 1, 2024.

This includes Saudi Arabia, Iran, Egypt, Argentina, Ethiopia, and the United Arab Emirates and marks the first expansion since South Africa's inclusion in 2010.

To date, more than 20 nations from the Global South have formally requested to join BRICS. The addition of these new members is expected to strengthen the influence of the BRICS bloc on the global economic and political stage despite raising certain concerns and challenges. Among these concerns, the acceptance of Iran into BRICS has the potential to strain relations with the US and the broader Western countries due to existing tensions…

…while on the other hand, the inclusion of Iran, Saudi Arabia, and the UAE would introduce valuable perspectives from previously unrepresented segments of the global economy. Another consideration is that Saudi Arabia and the UAE within BRICS would substantially enhance the bloc's economic influence…

…particularly because of their status as key members of OPEC and significant players in the global oil market - and could well spark the end of the petro-dollar. Moreover, the presence of Saudi Arabia and Argentina, both active members of the Group of Twenty (G20), could enable BRICS to synchronize the perspectives of numerous emerging market G20 participants.

China primarily spearheaded the drive for expansion, receiving support from Russia and South Africa, while India expressed reservations, fearing that a larger BRICS might turn into a platform dominated by China's interests.

You can’t really blame India for raising such concerns, though, right?

The participation of Saudi Arabia, Iran, and the UAE within BRICS would have seemed implausible until recently and highlights the evolving diplomatic dynamics among these nations, largely facilitated by China's mediation efforts.

Could the potential alignment of China, Russia, and Iran lead to anti-Western stances within BRICS?

All arrows point in that direction. This 'union' will create a greater divide between East and West, without a shadow of a doubt. And the ANC is clearly showing who it is aligning with, which is inevitable given its leanings...

On Wednesday, the US dollar weakened slightly following the release of data indicating that US business activity approached a standstill in August. S&P Global reported that its preliminary US Composite PMI index, monitoring both manufacturing and service sectors, declined to 50.4 in August, down from 52 in July…

…this marks the most significant decrease since November 2022.

Later that day Statistics South Africa released the yearly consumer inflation rate for July showing it declined to 4.7%, down from June's 5.4%.

This lowered figure positions CPI within the SARB's target range of 3% to 6%, marking the fourth month of disinflation since March 2023 and the lowest point in two years.

The trajectory of inflation this year, moving downward, indicates positive news for interest rates, implying a potential hold during the September meeting. Transport, previously a major driver of inflation, played a pivotal role in reducing inflation in July, while food inflation also moderated, decreasing from 11.0% in June to 9.9%.

However, municipal tariffs in July and August revealed a 2.8% increase in housing and utility costs between June and July. The survey indicated that households are paying an average of 14.5% more for electricity, with water tariffs increasing by 9.6% and property rates by 2.9%.

The poor US results and improved local inflation results helped the Rand receive support and it dipped below R18.50/$ by Wednesday afternoon...

...and hit a low of R18.40/$ in after-hours trade

...just as our sort term outlook had forecast on the Friday prior!

But it didn't stay there for long!

As the BRICS summit drew to a close on Thursday, the dollar strengthened ahead of the Fed’s Jackson Hole symposium on Friday and the local unit was forced back above R18.70/$...

...but still on course for its first green arrow of the month.

Before we continue, let’s take a quick look at some of the other major news headlines of the week:

• On the sidelines of the BRICS Summit, an agreement was signed whereby the Department of Public Enterprises established a Collaboration Framework Agreement with the China Development Bank (CBD) in a move aimed at bolstering the viability of SOCs, according to statements from the department.
  
  The CBD has already secured financing agreements with Eskom and Transnet, encompassing locomotives and the construction of power stations, namely Medupi and Kusile. The Department of Public Enterprises holds a strong belief that this agreement will provide an advantageous positioning for SOCs in terms of future growth and will be achieved by harnessing the potential of sharing expertise, technical skills, and other strategic drivers facilitated by this collaborative framework agreement.

  (In reality, SA is busy selling the core of the country's services to China, a classic move they have used to manipulate African countries for so long...)

• Gold remained stable on Friday, poised to achieve its most favourable week since mid-July. The backing was provided by a decrease in U.S. bond yields prior to the anticipated keynote speech by Federal Reserve Chair Jerome Powell at the Jackson Hole symposium.

And then came Friday, and all attention moved to Wyoming for Chairman Powell’s speech.

Market observers have been optimistic that the Federal Reserve would maintain stable interest rates during their September meeting…

…however, he refrained from ruling out the potential for rate increases.

During his address, the Fed boss acknowledged signs that the economy might not be slowing down as anticipated, and these indications included economic growth surpassing expectations and strong consumer spending. He also highlighted the housing market, which, after a period of decline spanning 18 months, was displaying signs of recovery...

...but also emphasized that further evidence of sustained above-average growth could jeopardize progress on inflation and might necessitate an additional tightening of monetary policy.

September rate hike incoming?

All in all, Powell's statements were not conclusive, and he did underline the Fed's openness to various options, but decisions would ultimately be based on comprehensive data evaluation, evolving outlook, and risks.

Key takeaway - the central bank is still prepared to take all necessary steps to align the rate with the 2% target. No matter what.

Following the speech, the greenback gained on most emerging currencies as participants digested the remarks made by Powell on Friday afternoon.

The Rand pushed above R18.70/$ briefly following Powell's speech but dropped in evening trade to end in the mid R18.60s.
Nothing life-changing but a welcomed week in the green.

The Week Ahead (28 Aug - 1 Sep 2023)

Here's what we'll be eyeing up over the next five days:

• SA ABSA Manufacturing PMI, Balance of Trade (Jul), PPI MoM (Jul)
• EU/UK Mortgage Lending (Jul)
• US - Non-Farm Payrolls (Aug), ISM Manufacturing PMI (Aug)

And just like that, we enter the final stretch of August.

Once again, our sentiment-based forecasting model was right on the money again last week, and we expect more of the same as we head into a busy September month.

You can get access to all our reports and projections by clicking the link below, and if you have any questions, please feel free to reach out.

Until next week.

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To your success~

James Paynter

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