Welcome to this week's Rand Review, where we dive into the tumultuous journey of the South African Rand over the past week.
Last week we warned you to hold on tight, as our crystal ball was expecting a bumpy ride.
..and what a week it turned out to be - with another win for our forecasting system!
With global stock markets in flux, critical national elections locally, and political lawfare high-jinx across in the US, the Rand's performance the last couple of weeks has seen a significant shift.
From economic data releases to geopolitical tensions, we'll unpack how these elements shaped the Rand's movements and what we can expect moving forward.
Key Moments (27-31 May 2024):
These were some of the major headlines over the last five days:
- SARB Mark Time: The MPC kept rates on hold as expected.
- US Economic Slowdown: Growth and inflation both show a slowdown in the US economy
- Election Surprises: ANC suffers big setback with Zuma's MK party the main beneficiary.
- Trump Conviction: The NY guilty verdict for Donald Trump on multiple charges sent shockwaves through global markets.
Well, election was finally here, and there was much deliberation about how the Rand would react to everything that was happening both in Safferland and overseas.
For us, we instead just focused on what the charts themselves were telling us, based on the sentiment cycles that were present in the market...
...and they showed an interesting picture:
(Click to enlarge)
As can be seen from the above forecast, we were expecting some more fireworks for the week, with a move up into the 18.67-18.92 area over the coming days!
It was going to be a very interesting week if this played out...
But it wasn't at all evident to start off with...
The week kicked off with the Rand opening at R18.35 to the Dollar, showing some welcome stability after experiencing a change of fortunes the previous week...
...and seemed to then just bump around in a 16 cents range before ending the day back where it started.
With no real news to trigger moves, it appeared the market was marking time ahead of the elections on Wednesday...
...in what is likely to be one of the most significant elections since 1994, with former president Zuma's MK party likely to put a significant spanner in the ANC's works.
Tuesday was a bit more eventful, with the Rand weakening initially to test R18.43/$ before turning things around, regaining some the past week's lost ground to end the day around R18.25/$...
...it somehow felt like a calm before the storm!
And then it was Wednesday - an election day holiday, which should have meant a nice quiet day for the markets, right?
Wrong!
The Rand initially weakened in early trade touching R18.33 to the USD, but then reversed sharply to test a bit below Tuesday's low, touching R18.22...
...but that was the end of the Rand's resistance, as it lost ground through the rest of the day, testing R18.45 before ending the day in US trade around R18.40/$.
Early results from the elections showed a breath-taking 15+ percentage drop in support for the ANC, with the MK party having a strong showing for a new party, especially in KwaZulu Natal - and projected to be the third biggest party ahead of Juju's EFF...
Thursday dawned with the Rand around R18.40/$ in early trade, but almost immediately was on the back foot as traders absorbed the early result of the elections and what the implications could be, as well as taking positions ahead of the MPC's interest rate decision.
It lost 10c in an hour, and another 10c the next - and by midday it had jumped all of 36 cents before the Rand managed to find some fight and push it back to R18.55 to the USD ahead of the Reserve Bank's interest rate decision...
...which came out as expected, with no change once again.
But that didn't stop the market from reacting, as it pushed higher once again, with the Rand giving back most of it had gained, eventually closing in late trade around R18.70...
...and in so doing, perfectly validating our forecast of a few days earlier!
What made this the more interesting was that this all came amid the release of GDP growth in the US for the Q1 2024 coming in at 1.3% versus 3.4% in the previous quarter.
And the US core PCE price index, the Fed's preferred measurement of inflation, rose by 0.2% from the previous month in April of 2024 after a 0.3% increase in March, the slowest increase so far in 2024...
...both these should have hurt the Dollar ... but in fact did the opposite!
Proving once again how mass sentiment drives the market - NOT the news!
Negative sentiment wasn't limited to the Rand, however, as the JSE also tumbled, with the Top 40 Index falling 2.3% before recovering slightly.
In other news:
In a highly politically-charged and publicized case in New York, Donald Trump was found guilty of 34 accounts of felony by the jury for what is in essence an accounting allocation in respect of a hush-money payment.
Of course, the Democrats and mainstream media lapped it up - it is something they have desperately been wanting to see ever since Trump announced he was running for president 2016. While this is almost certainly to be overthrown on appeal, nevertheless it has exposed a two-tier justice system, with the kind of weaponization of the law one would expect in a Venezuela.
Interestingly though, if this was meant to hurt Trump in terms of support, or his chances in November, it seems to have done the opposite, with his campaign seeing record donations since the verdict.
One can't help wondering whether this is all going to boomerang rather badly on those who seem so desperate to keep him out of the White House...
...some intriguing months lie ahead!
And then it was Friday...
...and if anyone had expected a quiet end to the week, they were sorely disappointed.
It was a real ding-dong battle for the Rand, as it had another torrid start to the day, with the market shooting higher to come within a whisker of R18.90...
...then dropping dramatically as the Rand fought back to hit R18.62.
Some positive news was that South Africa posted a trade surplus of R10.5 billion in April 2024, larger than an upwardly revised R9.2 billion in the previous month.
But unfortunately, the Rand could not hold on to its gains as the Dollar fought back to push the market back above R18.85 before settling back to end the week back in the mid R19.70s to the Dollar.
The last two weeks have been a stark reminder of the Rand's vulnerability to both local economic conditions and global market movements.
With economic data painting an uneasy picture, together with global uncertainties and election-related volatility, the Rand's path ahead remains a rocky one.
The Week Ahead (3-7 June 2024)
Well, Monday has dawned and the election dust has settled...
And in one of the biggest election shake-ups, the ANC has lost almost 18% support since 2019, and in so doing falling to below 40% of the national vote! The DA managed to gain 1% (and secure a majority in the Western Cape), while Juju's EFF lost 1%!
But the biggest shaker was Zuma's new MK party, which managed to gain a healthy 14.4% of the vote - but falling short of 50% in KZN.
So some interesting days ahead...as political coalition discussions ensue.
Apart from this, there are a few big potential market triggers over the next few days:
- SA: Manufacturing PMI, GDP Growth, Current Account
- US: Manufacturing PMI, Non-farm Payrolls
- EU: ECB Rate Decision
Once again, we do not expect this rollercoaster ride to slow down anytime soon!
Do not be caught up by your emotions - which is easy to do at such a time!
to make the RIGHT decisions...and take the RIGHT action....at the RIGHT time!
Hit the link below to get access to our latest outlook
for the next few days, weeks and months ahead.
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.
Simply use the link below to get access now.
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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(You don't want to regret not having done so this time next week...)
If you have any questions or feedback, please leave them below.
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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