Welcome back to the Weekly Rand Review, your go-to source for the latest updates on South Africa's resilient yet susceptible currency.

It has been a wild ride, but not all unexpected, as our Elliott-wave based forecasting system has called one move after the next (more on that later)

The final full trading week of month one in Q3, and the major news of the week was set to come from the US, where the Federal Reserve would unveil its latest interest rate decision…

…and, perhaps more importantly, provide a few clues over their intended monetary policy trajectory moving forward.

As global inflation rates show promising signs of stabilizing, even in South Africa, the most recent data showed positive results for the Producer Price Index (PPI).

However, amid the favorable economic data, reports in the week have suggested that there could be a bit of a storm brewing in the Black Sea.

Let’s dive in.

Key Moments (24-28 July 2023)

These were the major headlines over the last five days:

• SA PPI Improves - Following the notable drop shown in consumer price inflation results released the previous week, producer price results followed suit last week, now at its lowest point since March 2021.
• US Rate Hike - On Wednesday, the Federal Reserve delivered on the highly anticipated interest rate hike, pushing benchmark borrowing costs to their highest level in over 22 years while leaving the possibility of future hikes firmly on the table.
• ECB Rate Hike - The European Central Bank revealed a quarter percentage point rate increase on Thursday, bringing its main rate to 3.75% as they continue to combat high inflation that peaked last July.

Before we get into the detail of the week though, we had our forecast from 21 July for the Dollar vs Rand in the next few days (something we send out to our subscribers twice a week).

This showed us sitting at R17.98, with a move expected into the R17.80-17.32 area over the coming days, as seen below

(Click to enlarge)

So as we headed into another tumultuous week, that is what our subscribers had in their inbox on Monday morning having been released late Friday, giving them the guidance they needed for the days ahead...

After ending the previous week below the R18/$ mark, the local unit opened doors on Monday level on its previous close at R17.98/$, in what was expected to be an active week in the currency market.

It wasn’t long until we saw the first significant movement of the week, in the right direction from a local perspective, as the Rand made early gains strengthening to the mid-R17.70s as the prevailing consensus among investors leaned toward the belief that the US central bank may adopt a more cautious approach to future rate increases.

It was a thin week of data results locally, but the Rand continued its good form into Tuesday, dropping below R17.60/$ as the greenback continued to weaken steadily in the first half of the week.

Providing some good news for the the Rand was that July has seen a surge in buying of government bonds.

This has been driven by slowing inflation and the South African central bank's recent decision to keep its main interest rate unchanged...

Producer price inflation in South Africa eased in June to 4.8%, significantly down from 7.3% in May, which is the lowest it has been since March 2021, when it was recorded at 5.2%...

…and a long, long way from the 18% levels it hit last July.

This points to welcomed lower production costs in SA, which spells great news for Saffers following the drop to 5.4% from 6.3% on the consumer price end.

In other news, according to the recent Household Affordability Index published by the Pietermaritzburg Economic Justice & Dignity Group (PMBEJD), South Africa's most vulnerable households are facing the brunt of electricity price hikes implemented by Eskom.

The power utility raised tariffs for direct customers by 18.65% in April 2023, and municipalities followed suit with similar rate increases to their customers from 1 July.

The scale of the tariff increases has had a substantial impact, with the PMBEJD reporting that nearly a third (32%) of the 2023 national minimum wage increase was entirely negated…

…leaving minimum wage earners with difficult choices between allocating funds for electricity or essential items like food.

It’s a sticky wicket for SARB and its MPC, having to balance these types of stats with keeping up with interest rates abroad.

On Wednesday, the Federal Reserve fulfilled market expectations by approving the anticipated interest rate hike, pushing benchmark borrowing costs to their highest level in over 22 years.

The Federal Open Market Committee, in a widely predicted move, increased the funds rate by a quarter percentage point, now taking it to a target range of 5.25%-5.5%...

…notably, the midpoint of this target range represents the highest level for the benchmark rate since early 2001.

During the press conference, Chairman Jerome Powell acknowledged that inflation has somewhat moderated since the middle of the previous year but highlighted that achieving the Fed's 2% target still has a long way to go…

Despite the rate hike, Powell also indicated the possibility of holding rates steady at the Fed's next meeting in September, signaling a cautious approach to future monetary policy decisions…

…but ultimately, it’s just a waiting game that will play out based on the incoming data and subsequent sentiment, with two more inflation and jobs reports due before the next meeting.

Investors remained relatively unfazed following the news from the US Fed as market participants seemingly remained convinced that this might be the last hike in the current cycle before holding steady for the rest of the year.

The greenback weekend on Thursday morning as investor appetite for riskier currencies increased, and the Rand hit its best level since February this year of R17.41/$ before lunch.

Later in the afternoon, though, the dollar regained backing as data showed that the US economy had grown faster than expected in Q2, with new orders for key US-manufactured capital goods increaing in June.

The Rand slid back to R17.73 by the close of play on Thursday but was still on track for another green arrow heading into the last Friday of the month.

But first, let’s take a look at another story that has been developing over the last couple of weeks:

The US and its allies are currently facing a critical challenge in averting a global food crisis following Russia's withdrawal from the Black Sea grain deal. This move has been followed by a series of attacks on Ukraine's ports and storage facilities, posing a significant threat to the country's massive farming industry and potential disruptions to the global grain supply.

Since its withdrawal from the grain deal on July 17th, Russia has reportedly intensified attacks on grain supplies in critical Ukrainian cities, particularly in the port city of Odesa. These attacks have reportedly resulted in the destruction of 60,000 tons of grain, which is sufficient to feed approximately 270,000 people for a year, according to the British Ambassador to the UN, Barbara Woodward, in the week.

Putin attributed the withdrawal partly to Western sanctions, which he claimed hindered the sale of Russian agricultural products in international markets. The deal, facilitated by Turkey, had been in effect for approximately a year and enabled the safe passage of billions of dollars worth of grain from Ukraine through the Black Sea.

The Russian president went on to add that Russia would be able to provide six African countries, namely Somalia, Burkina Faso, Eritrea, Zimbabwe, Central African Republic, and Mali, with 25,000-50,000 tons of "free grain" in the next three to four months.

Hmmm… Free? Really?

Not without them selling out its resources and strategic positioning, that's for sure...

Anyone who has been in the game for long enough, knows that there is nothing for nothing in this game - as we have seen with the likes of China's operations in Africa.

In response to the situation, emergency meetings have been convened by key international organizations, including the United Nations, NATO, and the European Commission, and the focus of these discussions is to devise strategies to support Ukraine's farming sector and secure grain supplies in the face of the crisis.

The situation remains highly fluid, so we’ll keep an eye on how this develops over the next few weeks.

The local unit remained relatively stable in early trade on Friday, and capped off a solid week with a late surge to end the week in the R17.60/$ region.

A big green arrow, and the third in succession!

(And dare we say it, exact as per what our forecast had predicted!

The Week Ahead (31 July - 4 Aug 2023)

Another big week expected. Here are the potential triggers we’ll be keeping an eye on:

• SA - Balance of Trade (Jun), ABSA Manufacturing PMI (Jul), S&P Global PMI (Jul)
• EU/UK - EU PPI YoY (June), EU Retail Sales YoY (Jun), BOE Interest Rate Decision
• US - ISM Manufacturing and Services PMI (Jul), Non-Farm Payrolls (Jul),

So far, so good for the Rand in Q3…

…and we’ve been right on the money for the most part, thanks to our forecasting models that have been smashing the predictions for our customers.

With the market being as fragile as it is at the moment, a little help can go a long way.

Want to know what’s next in store for the Rand? Get in touch for more detail, else we’ll see you back next week for the full rundown.

Safe trading until then.

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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