Rand Review - 27 Mar 2017

This past week was nothing short of a blitzkrieg.

An annihilation.

But not the type we have come to know over the years with the USDZAR...

...for once, it was the Rand coming out on top!

And handsomely too!

In a period of continued strength, the Rand really climbed into the Dollar, growing its gains by almost 30c (1.76%) during the course of the week!

This was turning into quite a run...

...but was it going to continue?

...is there still momentum in the trend?

Maybe if we review how it all happened, we can get some insight...

This was always expected to be a huge week...

Just 5 days was all we had to encapsulate an array of political & economic events, and then a few catastrophes occurred en route.

While the politics side of things was mainly US based, the economic events were spread across the board with the Citibank Collusion settlement, SA's Current Account Q4, Inflation Rates and more meant there was plenty happening in every country.

In the middle of it, there was a public holiday on Tuesday.

The week started with the Rand trading just under R12.70/$.

And as always, we began our week with a forecast update...

...and this week, a mighty surprising one for most!

Yet more Rand strength seemed to be on the horizon, with a target area of 12.66-12.44 expected within the next few days. After that, the market was expected to be bottoming out and moving up higher above the R12.72/$ area.

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And from the outset, the Rand appeared to have some gentle but good momentum running with it, taking it into the low 12.60s in late afternoon.

The Rand was said to be "reaping the benefits" of the US Fed's pessimistic statement from last week, and sentiment was good heading into the public holiday

Tuesday dawned...and most of South Africa took a bit of an early breather...

But the markets did not take the hint.

Despite the country taking it easy, the Rand went its own way with large gains being made throughout the afternoon.

After making a high in the morning of just under R12.70, the Rand absolutely crushed it!

It pin-dropped most of 20c, and was sitting pretty by late afternoon at R12.52/$...

...but there was still more tricks up the sleeve.

The market then turned a third time, and weakened drastically during the evening and throughout the night, meaning that by the following morning 8am, a very different picture faced us...

So in just 24 hours, the market had moved almost 40c!

Not what you want when trying to bring in some stability to investor and business confidence...!

So...

Wednesday, 8:00 - the Rand sitting just over R12.70.

And it turned once again.

The market built up some great momentum throughout the day, cruising down into the mid R12.50s with aplomb!

This was on the back of fantastic figures coming out of South Africa's Current Account for Q4 - but Wednesday was still a day which most would like to forget...

Terrible scenes in London as a terrorist attack outside Parliament was what marked the day. It was the UK's worst terror attack in 12 years - and unfortunately, this was an incident just waiting to happen.

This only provided more fire for the Trump Travel Ban, justifying why it is so important... whether this caused any stir in the markets is unknown, but it definitely shook the world...!

Earlier in the week, Bloomberg released a graph showing some emerging markets, and rating them on how attractive they were, based on a number of criteria...

It was unsurprising to see South Africa and its Rand sitting in the middle ground, as volatile markets mean that it is difficult to put too much store on the currency.

It was also agreed earlier in the week by Citigroup Inc. that a penalty of almost 70 million rand ($5.4 million) to settle a South African antitrust investigation was to be paid, as a fine for manipulating the ZAR...

...a penalty which feels all too small for such a giant bank.

But onwards to Thursday...

The Rand actually opens the day trading at R12.55/$... this was already a 20 month record, but it was not done yet!

Our forecast was due, and we updated the short term view to give us the expected trend over the next few days - and it showed still further Rand strength was expected to be seen.

A target area of 12.66-12.42 was the expected target area over the next few days, before the market would bottom out.

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And so the Rand continued its march...!

Further strength was all the market had in mind, and it kept on pushing hard throughout Thursday!
What a week it had been!

The Fed continued its pessimistic outlook on Thursday, and this on the back of the excellent Current Account data was said to be the reason for such Rand strength... but this did not explain the Rand's run over the last few weeks!

So, despite being stable, by the end of Friday, the Rand had strengthened a further 10c, with more gains seemingly on the way!

It had been a shocker of a week...but right in line with our first forecast.

And all of a sudden, we were on the fringe of the weekend...

Unsurprisingly, after such a week, the Rand gave the Dollar another dose of the same medicine on Friday!

In a relentless attack, while USA fought and debated over Russian Interference, Obamacare and more, the Rand had strengthened by over 1.76% since Monday!

It has been a very long time since we last saw such a continued bout of despair from the USD, and most of South Africa was loving it.

With the only major event for Friday being the US Durable Goods orders, the Rand sped onwards, showing no sign of slowing...

It was capping off a fantastic week in style, and it finished off the week at the best level we have seen since July 2015...!

The week ahead brings interesting prospects...

The Rand's crazy run over the last couple of weeks brings us to a position we have not seen in nearly 2 years...

In fact, 2017 as a whole has been a quite incredible year for the Rand so far - we are only just short of one quarter into the year, and we have already seen a 140c strengthening as of Friday the 24th...

...however...

When sentiment reaches an extreme, there is a specific point where things change, and the trend turns...

...and can turn quickly...

...AS WE HAVE SEEN TODAY.

Isn't it uncanny how extreme events happen at extremes of market moves?

Just when all was starting to look so rosy and persons were becoming with fearful or greedy (depending on which side of the market they were).

It is at times like these that Warren Buffet's advice come to mind...

"Be greedy when everyone is fearful

And be fearful when everyone is greedy"

That statement is a real gold nugget.

Words of wisdom are often sought after...but seldom heeded.

His words reinforce the fact that emotion CAN and WILL take over your decisions...

...and therein lies the danger.

But how do we know when our emotions are taking over?

As soon as you are going by 'gut feel', your emotions have already taken over.

What you need to make a decision is clear cut facts and simple to understand information, rather than uncontrollable emotion.

Our forecasts provide a service which we believe fits the requirement. Gain access to them today with a free trial:

As always, I would love to hear your comments and feedback - please leave a comment below.

To your success~

James Paynter