And welcome to another issue of our Weekly Rand insights!
Sjoe, what a week it's been for our the often bewildering Rand, with a bumpy ride that would rival a Jo'burg minibus taxi on a potholed Soweto road. From the South African Reserve Bank's cautious hand to Eskom's power plays, and from retail therapy to European Central Bank surprises, the Rand has been on a proper rollercoaster.
This week, we watched SARB hold firm on its monetary policy, sending ripples through the market. But that was just the warm-up act. As the week unfolded, we saw Eskom's debt woes cast a long shadow, retail sales numbers give us a glimmer of hope, and the ECB throw a spanner in the works...
...and then we had more Middle East drama unfolding
But through it all, the Rand showed its resilience, although still ending up taking a bit of a knock.
So, grab your favorite brew, settle in, and let's unpack this wild week in the world of the Rand.
Key Moments (14-18 Oct 2024):
Some of the more pertinent headlines and events over the past week:
- SARB Monetary Policy Review: Inflation is slowly returning to targets with slight growth expectations
- Eskom's R200 Billion Debt: Eskom's debt has once again come under the spotlight
- ECB's Rate Decision impacts global currency markets
- Middle East Escalates: The killing of Hamas leader in Gaza by Israel put a new twist to the ongoing war.
Monday: SARB Anticipation Sets the Stage
The Rand opened at 17.37 against the greenback, showing early jitters as traders positioned themselves ahead of SARB's Monetary Policy Review.
Throughout the morning, we saw tight trading ranges, with the USDZAR pair hovering between 17.35 and 17.38. But as the day wore on, volatility and speculation began to build...
...by mid afternoon, we'd pushed up to R17.58/$, and then saw further weakening in after hours trade before the Rand found some fight to close the day at 17.52.
Not the start most were hoping for, but the real action was yet to come if our forecast from Friday was to believed...
...which expected a move up into the R17.74-18.01 area over the coming days...see below
(enlarge here)
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It was going to be an interesting week if this played out.
Tuesday: SARB Speaks, Rand Weakens
Opening slightly weaker at 17.51, we saw steady pressure throughout the morning. By lunchtime, the USDZAR had climbed to 17.67. A brief respite in the early afternoon saw us pull back to 17.58, but it was short-lived.
D-day arrived with the SARB's Monetary Policy Review, and... drumroll... it was steady and cautious as she goes, with inflation steadily coming back into the target area, and interest rates to be slowly lowed, while a 1.1% growth rate for 2025 anticipated.
The initial market reaction?
A collective "meh" that saw the Rand continue its slide.
The pair climbed steadily into the close, ending Tuesday at 17.62, another 0.6% weaker.
The SARB's steady hand might be good for the economy in the long run, but in the short term, it left Rand bulls feeling rather deflated.
Wednesday: Eskom Flips the Switch
Midweek brought us a proper game of two halves. The morning session saw the Rand continue its losing streak, with the USDZAR climbing to a high of 17.66 by mid-morning.
But then, like an unexpected burst of electricity during load shedding, Eskom's woes were back in the spotlight, with the news that a massive R85 billion was owed by municipalities, with only 14 of 72 paying as they should, with this likely to escalate to R200 billion if not addressed soon.
And Eskom's solution?
Surprise, surprise: They plan to raise prices by 36% in 2025, followed by increases of 11.8% and 9.1% in 2026 and 2027!
In other words, punish those who are paying to bail out those who aren't!
While it's a major headache for the utility and the country, the market seemed to take a "same-old, same-old" view, rather focusing on better-than-expected retails sales, which came in at 3.2% year-on-year...
...which saw a steady decline in the USDZAR throughout the afternoon, closing out at R17.58/$ - a slight recovery.
In other news:
- In another twist to Middle East conflict, Israel announced they had taken out Hamas' top leader Yahya Sinwar, architect of the 7 Oct terrorist attacks that killed approximately 1,200 people in Israel last year, in an attack in Gaza, striking a serious blow to the organisation and its survival.
- Gold hit new highs of $2723 and US stock indices Dow Jones and S&P500 also edged to record highs during the week as we head closer the US elections.
Thursday: ECB Cut Triggers Volatility
If Wednesday was the braai, Thursday was the veld fire, with the European Central Bank rate decision seemingly providing the trigger for major volatility...
...and boy, did we feel it!
The day started innocently enough, opening at 17.59. But by mid-morning, all hell broke loose. The ECB's announcement sent shockwaves through global currency markets, and the Rand took a proper klap.
In no time we saw the USDZAR rocket up to hit R17.80/$ by 3pm...
...didn't someone see this one coming? 😀
The afternoon brought some relief, with the pair hovering around 17.72 before managing to close at a much healthier R17.65/$.
-vs-USD_20241018.png)
Friday: The Comeback Kid
Just when we thought the Rand was down for the count, Friday brought us the comeback story of the week.
Opening at R17.66/$, we saw immediate strength Rand strength. By mid-morning, the USDZAR had dropped to R17.57. And we didn't stop there as it pushed still lower to hit R17.54/$, before settling at 17.59 at the close.
A solid 0.30% stronger on the day, and a much-needed boost to end the week.
And yes, once again, another satisfying win for our forecasting service.
Volatility & Risk Analysis
So what did such a volatile week mean for you in terms of your forex risk?
- The Average Daily Range for the week was 17c or 1.0% - which means that for every R1 million exposure the daily fluctuation (potential profit or loss) on average was R17,000 every day
- The Weekly Range (total fluctuation) from the highest point to the lowest point was 45c or 2.6%. This means by taking action at the right time you could have saved a R45,000 for every R1 million exposure...
...while not doing so would have meant a forex loss of R45,000!
This highlights the importance of having an objective system for timing your hedging and conversions to enable you to:
- Mitigate potential losses and
- Take advantage of favorable market movements.
And as you can from our forecast prior to this past week's move, just this one forecast could have meant all the difference in helping you make the right decision at the right time - at a fraction of the cost of your risk!
The Week Ahead
Looking ahead this week, we have US Durable Goods and local Inflation data to digest.
And then, of course, we have the global tensions as well as the final countdown to the US elections.
Of interest, in stark contrast to most mainstream polling (which have shown considerable bias in past elections) it would seem that the market is betting (literally) on a Trump victory.
What makes us say that?
Simply take a look at betting platform Polymarket's 2024 Election Forecast, which shows that for those prepared to put their money where their mouth is, Trump is currently sitting at 62.5% expectancy of winning, and well ahead in swing states.
Not something you will see the mainstream media pointing out, but this is as close to real polling as you can get, with a just over a week to go.
Stay tuned, and feel free to share your thoughts or ask any questions!
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.
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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