Welcome back to your favourite Weekly Rand Review, where we do our best to keep you up to date with the ever-evolving landscape of South Africa's local currency.

In the wake of a challenging period for Saffers, we find solace in the recent strengthening experienced by the Rand. After enduring months of poor performance, this past week has breathed new life into the currency, offering a glimmer of hope to those who have weathered the storm.

Amidst this (mini) resurgence, one particular factor played a pivotal role in bolstering the Rand's recovery: a temporary pause in interest rate hikes in the United States! As the Federal Reserve exercises caution in its decision-making, emerging markets, including the Rand, have found themselves benefiting from this reprieve.

The Rand, which bore the brunt of the pain during the recent hiking cycle, is now seizing the opportunity to regain lost ground and reminding us yet again that when things seem at their very worst, they’re often primed for a reversal (as we highlighted with our forecast in last week's Rand Review).

Let’s get into the events from last week:

Key Moments (12-16 June 2023)

A shorter trading week locally, but here’s what made the headlines.

• Mining Recovery - - Stats SA delivered a positive reading around the mining sector for the first time in 14 months as production output in the crucial sector increased by a credible 2.2% in the year to April.
• Tensions Ease - - South African President Cyril Ramaphosa is expected to travel to Russia and Ukraine over the weekend for an African-led peace mission attempting to end the ongoing war, which will go a long way to reducing recent tensions between SA and the West.
• Fed ‘Skips’ One - - Following another month of cooling inflation in the US, the Fed confirmed in the week that it would opt against increasing interest rates for the first time in almost a year as it takes some time to measure the impact of previous hikes.

The Rand enjoyed a much-needed week in the green following a host of local and international issues that saw the local unit sink to its worst levels ever a couple of weeks ago. From power cuts to risky relations and potential sanctions, it was all a bit overwhelming for the local unit that looked set to breach an almost unthinkable R20 for a single greenback.

The sanctions & economic restrictions remain a real threat, as US Congress members issued a letter on the subject of SA, as the Biden Administration continues to talk about SA's Russia relations, AGOA and more...

But, as we know, it is human sentiment that drives the market, and when virtually everyone has turned negative (which was the case earlier this month), there is no-one left to push the market further...

...and so the market reverses...

...even if there is no real change in the underlying news and data releases.

And that is why so many are caught off guard by such reversals, and economists and supposed 'experts' are left scurrying around looking for reasons - always after the fact!

Anyway, the Rand stepped into the week at R18.70/$...

...almost brimming with confidence after breaching back below R19/$ late last week.

Locally, investors were eyeing up crucial mining and retail results in search of indicators over whether SA’s ability to avoid a technical recession in Q1 could be sustained over the upcoming months…

…but the major headline for the week would be news from the US Fed.

With reduced power cuts announced by Eskom early in the week, sentiment continued to improve toward the local unit as it set off on its first descent for the week, breaking below R18.60/$ before the end of the day.

Stats SA released results on Tuesday showing that the country’s total mining output rose 2.3% year-on-year in April, following a 2.2% drop in March. The major contributors to reversing the 14 consecutive months of contraction were gold and white coal, which increased by 27.4% and 12.5%, respectively.

However, it was a different story on the retail sales front, as results showed that consumers continued to feel the impact of high inflation and interest rates in April, with total sales falling for a fifth consecutive month, down by 1.6% YoY, following a 1.5% drop a month earlier.

In total, five of the seven retail categories that make up the index had declined year-on-year. The local unit was pushed backwards slightly overnight on Tuesday as investors held off placing big bets with the all-important US CPI results scheduled to be released the next day. On Wednesday, the US Labour Department announced that the inflation rate in the world’s top economy had cooled again in May, down to its lowest annual rate in more than two years.

Inflation in the US in the year to May was recorded at 4%, a significant drop from 4.9% a month earlier and the smallest since March 2021.

Core inflation, though, continued to prove a difficult hurdle to overcome just yet, increasing by 0.4% on the month and still up 5.3% from a year ago, clearly indicating that while price pressures are easing, consumers are not out of the woods yet.

Energy prices also dropped 11.7% over the last year.

And then jumping to the US - following their two-day meeting, the decision taken by the FOMC was to skip a rate hike in June as they take another six weeks to see the impact of their existing policy moves in the wake of promising but uneven signs. During a press conference shortly after, Fed boss Jerome Powell confirmed that the FOMC had not made any decisions over whether an increase could be expected in July…

…but he did touch on their projection of another two quarter-point hikes likely to be implemented before the end of the year.

Ultimately, the decision taken was expected as a six-week period allows the Fed to fully assess how higher borrowing rates have affected the economy as well as to see how the collapse of three large banks will weigh on lending, growth, and, crucially, investor sentiment.

As the news of the halt in rate hiking filtered out of the US, market sentiment toward riskier currencies like the Rand gained ground, and the local unit surged to its strongest level in over six weeks. After breaking below R18.50/$ by Wednesday evening, the revitalised Rand continued its progress overnight and romped onward to the R18.20s by Thursday evening!

The local unit was also aided by reports that President Ramaphosa would be heading to Europe as part of an African-led peace mission in an attempt to end the ongoing war that sparked the inflation surge, which is still having real effects on the world economy.

Combined with intentions of moving the BRICS summit to China or online, the question is if these decisions will help to ease recent tensions and heal international sentiment - or if it is too little too late?

Before the US accusations that SA had provided arms to Russia, the Rand was trading in the region of R18.30/$, and the return to the mid R18.20s last week means that the losses incurred since then have been almost entirely erased. The Rand was trading at R18.19/$ at the close of play on Thursday and en route to recording another solid performance for the week.

As we usually do about this time, let’s take a quick look at some of the other major headlines from the week:

• The European Central Bank announced that it will raise its key rates by another 25 basis points following its June policy meeting. Interest rates on refinancing options, marginal lending facilities, and deposit facilities will now reach 4%, 4.25%, and 3.5%, respectively. ECB President Christine Lagarde also mentioned that the central bank was “very likely” to continue raising rates in July in her post-meeting conference.
• Meanwhile, over in the UK, the Office for National Statistics released results on Wednesday showing that the gross domestic product of the country had risen by a slender 0.2% month-on-month in April, following a 0.3% drop in March. A combination of increased consumer spending in the services sector and a reduction in public sector strikes fuelled the increase, though there was a notable dip in the manufacturing and pharmaceutical sectors.

As South Africa celebrated Youth Day on Friday, local investors were also celebrating a potential Rand recovery as the local unit surged back below R18.20/$ and onward to the mid R18.10s.

A huge win for the Rand this week and three weeks of gains in a row!

The Week Ahead (19-23 June 2023)

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

• SA - Inflation Rate YoY (May)
• EU/UK - UK Inflation Rate YoY (May), UK BoE Interest Rate Decision
• US - Fed Chair Powell's Testimony

Of interest, Friday’s performance marked 11 out of 12 days gains for the local unit, a remarkable streak that has not been seen for many years.

Is it rational? No, absolutely not...

...because we are predictably emotionally-driven and irrational creatures when involved in the currency and other markets.

And it is precisely this that enables our forecasting models to guide us along the way, to make sense of the landscape, and take the right action at the right moment.

Until next week, safe trading!

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

P.S. Enjoyed this Weekly Rand Review? Click here to get our Weekly Rand Review in your inbox every Monday