Welcome back to our weekly review of South African Rand vs US Dollar (USD/ZAR) relations.
Well, what another pulsating week for the Rand and global markets.
After a few weeks with a plethora of market-mover economic data releases, this past week was a somewhat quieter week on that front in terms of BIG events...
...but that didn't stop the markets from moving!
The week was marked by the market absorbing the previous week's data (especially US employment figures) and reacting to it, and then domestically some business/ manufacturing stats - and then, of course, Ramaphosa's State of the Nation speech later in the week.
The Rand seemed to be at the mercy of the markets initially, before find some encouraging strength...
...but that never lasted as it gave most of what it had gained back in the latter half of the week.
Let's get into the full review...
Key Moments (5 January - 9 February 2024)
Some highlights from the past week were the following:
- SA Business Blues: Manufacturing production and Purchaser's Manager's Index (PMI) releases reflect the challenges within an economy that is lacking sufficient growth
- Ramaphosa's SONA 'Election' Speech: Addressing the nation, President Ramaphosa made a lot of promises and touted the ANC's 'successes' - elections coming up?
The week opened with the Rand on the backfoot after having had a torrid week - when it simply fell out of bed on Friday...
Interestingly, our Rand forecasting system's short-term prediction the prior week had been very clear on where we could expect the market to head.
Below is the picture we and our clients saw...
(Click to enlarge)
As can be seen, with the market sitting at 18.70, we were anticipating a bottoming out above 18.4300 before rising strongly towards 19.10.
And as we know, Friday saw the market jump 20c from these levels to test 18.90 or so to the Dollar ...
...but if this prediction played out, we were in for some more Rand weakness
It was going to be an interesting week...
And it didn't take long for the fun to begin, as the Rand (USD/ZAR) opened on Monday in early trade around R19.85/$ slightly off from the levels reached the prior week...
...but it was soon on the the move, as it seemed at the mercy of the US Dollar.
The Dollar Index (DXY) had jumped by over 1% on Friday with the market's positive reaction to the prior week's strong employment data (and the damper it put on possible early rate cuts)...
...and it continued to ride the wave on Monday, with the Rand being swept along in its wake as it pushed higher to test R19.10/$ by SA close...
While the data on Friday may seem good for the US economy on the surface, as we have said many times before, these numbers can be misleading as the the health of the economy:
- How many of these are persons taking on a second or third job (or a spouse taking a job) in order to make ends meet with the increased cost-of-living?
- And another interesting one, is that approximately 20% of US Nonfarm Payrolls have been attributed to government hiring - NOT a good thing when the government payroll is already bloated and battling to make ends meet!
Anyway, to get back to the Rand, after closing on Monday above R19/$, on Tuesday we saw the fightback, as the market fell by over 25c through the day to close out around R18.80/$ in after-hours trade.
But just as it was starting to look somewhat more rosy (for consumers and importers), come Wednesday, the local unit seemed to lose its impetus again, and tested the mid R18.90s before closing in after hours trade around R18.85/$.
Some possible triggers were the challenges that local manufacturing and business sectors were facing which reflected in the latest data releases...
- StatsSA’s data showing that South African manufacturing production increased 0.7% year-on-year in December 2023 – the slowest production increase in three months.
- And the S&P Global South Africa Purchasing Managers’ Index (PMI) was sitting at 49.2 in January (still below the 50 neutral mark), with businesses reporting a decrease in new business for the 9th month in a row - with the sharpest pace of decline seen in a year.
Contributing factors have been the weak economic conditions and reduced spending power, but also reduced global demand and shipping disruption.
And then, in other news:
- Across the pond, in an upbeat moment for global markets, US stocks reached new highs this week, with S&P500 breaching 5000 for the first time ever! According to economists, this signalled both investor confidence and economic strength that could ripple out to influence international markets.
We agree and disagree:
Yes, there is extreme levels of optimism and complacency on the one hand...
...but in an economy that is swimming in debt it can never hope to pay off...
Bottomline: It is a major collapse waiting to happen!
Thursday dawned with the Rand sitting in the high R18.80s as the market anticipated President Ramaphosa's speech of the year.
And he didn't disappoint...in disappointing!
In his latest theatrical performance, Ramaphosa all but promised a utopia where the notorious load shedding was almost as dead as the dodo, corruption is all but eradicated, and the dawn of a renewable energy era is upon us.
One can't be blamed for thinking this is the same old song, just a different verse, played on the fiddle of South African resilience and patience. A fantastical journey, abundant with promises of jobs and a flourishing economy...
...but one that always seems to be just over the next rainbow.
Meanwhile, he waxed poetic about the ANC's historical 'successes'...
more violent, less safe, less educated, and where state-owned enterprises
have been plundered and driven into the ground...
...and in which he skillfully sidestepped the gaping chasms left in the wake of the state capture
saga —
of the tripartite alliances' form of democrazy....
As the election looms like a spectre over the ANC's banquet of 'achievements', one can't help but note the timing of these grandiose promises.
It's almost as if the public is expected to suffer a collective amnesia, forgetting the years of unfulfilled pledges and squander, as they are serenaded with fresh vows of reforms that are always in progress, but never realized!
Well, if the voting public was taken in, investors were not, as the Rand pushed higher to test R19 against the Dollar on Thursday...
...before punching above the psychological level on Friday to end the week in the red, as it end up just below the R19.05 level.
And that was the wrap for the week...
...and another win for our forecasting system!
The Week Ahead (12 - 16 February 2024)
As we go into the week, we will be keeping our eyes on a few fundamental events:
- US - Retail Sales, Jobless Claims
- UK - Inflation, Retail Sales
- SA - Retail Sales
And if you are looking for some direction, our forecasting system is giving us some important pointers for the weeks and months ahead...
...helping us and our clients to keep one step ahead of the market.
As we showed in the past week's move -
to make the RIGHT decisions...and take the RIGHT action...
...at the RIGHT time!
Hit the link below to get access to our latest predictions.
Until we meet again, safe trading!
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.
No charge. No card. All yours to trial for 14 days.
(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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