Welcome back to the Weekly Rand Review, and thanks for taking the time to read our latest overview of the week's events in relation to SA’s currency.

As we delve into the events of the previous week, a confluence of global and local influences helped shape the trajectory of the Rand, bringing market participants both a sense of uncertainty and opportunity.

In the realm of global economics, the week witnessed the release of significant data, with the US Consumer Price Index (CPI) unveiling an increase in July…

…however, the results seemed to be met with cautious optimism by market participants, who continue to hold the sentiment that the US Federal Reserve might be at the culmination of its rate hiking cycle.

In the midst of the complex international landscape, the South African Rand displayed its own nuances, with a noticeable weakness reverberating through the currency, propelling it past the R19/$ mark last week.

A thin week of data - here’s your catchup:

Key Moments (7-11 Aug 2023)

These were some of the major headlines over the last five days:

• SA Mining and Manufacturing -According to data from Stats SA, mining production showed a year-on-year increase in June, rebounding from a 0.7 percent decline observed in May.
• US Consumer Prices Reverse - In July, the US consumer price index (CPI) gained momentum, reaching a year-on-year rate of 3.2%, a climb from June's 3.0%.
• Zuma Does It Again - Former president Jacob Zuma has been granted a "special remission" by the Department of Correctional Services, resulting in his return to prison being curtailed to a mere hour before his subsequent release.

After starting the week at R18.50/$, the local unit was already on the backfoot within hours of opening and trading in the mid R18.60s by midday.

The big news of the week was around the latest CPI results from the US, which would provide further clues on the likely course of action by the US Fed in terms of further interest rate hikes…

…but the Rand was being steadily sold through the first half of the week and was changing hands at a shade below R18.80/$ by Wednesday morning.

As the nation paused for a mid-week commemoration of Women's Day, the Rand experienced a severe decline against the dollar, once more breaching the R19/$ threshold.

The last instance of the Rand reaching the R19/$ mark was in early July, following an extended spell during May and into June when it remained above this level amidst a plethora of challenges in the country.

The initial blow in May was concerns over Eskom's grid stability cast shadows over the markets, while allegations of South Africa's involvement with Russia brought the spectre of potential US sanctions, causing investor hesitation. The ramifications of those difficulties lingered throughout June and parts of July, contributing to substantial local sell-offs, magnified by global market shifts, especially in the United States.

Beyond the prominent concerns, South Africa continues to be exposed to socio-political uncertainties, notably with the impending 2024 elections.

The national government's inclination towards growth-impeding socialist measures and its intricate geopolitical dance involving Western powers and Russia contribute to this risk landscape.

On the point of political issues, in a gobsmacking turn of events, South Africa’s Department of Correctional Services has decided to extend a "special remission" to former president Jacob Zuma, reducing his return to prison to just an hour before his subsequent release.

In July 2021, Zuma was sentenced to 15 months in prison for defying the Constitutional Court.

The Apex court had earlier instructed him, in February of that year, to testify at the state capture inquiry, a summons he disregarded. After being returned to prison (the first time), Zuma's time in custody was short-lived.

Then Correctional Services commissioner (and ardent Zuma supporter) Arthur Fraser granted him medical parole in September 2021 - defying the Medical Parole Advisory Board's counsel.

Back and forth ensued, and despite facing multiple court defeats in their efforts to prevent Zuma's re-incarceration, the department managed to find a way to do it by granting him a "special remission" on his sentence.

And the core reason for said "special remission"?

Overcrowding!

President Cyril Ramaphosa has reportedly sanctioned this remission, which encompasses nearly 9,500 "non-violent" convicts in South Africa, including Jacob Zuma.

This measure aims to address the issue of overcrowding in the country's prisons, given the Department of Correctional Services oversees 212,286 inmates, including 9,351 foreign nationals, distributed across 243 correctional centers and 218 community facilities.

Utterly astonishing that one more criminal being sent to prison is now a problem - when prisons have been overflowing for years.
That said, did you really expect anything different?

Well, back to the currency market.

In July, the US consumer price index (CPI) edged upward to 3.2% year-on-year, a climb from the preceding month's 3.0% in June, bringing an end to a period of 12 consecutive declines in the headline figure.

Despite this upswing, the Federal Reserve appeared relatively unphased. The Dollar was calm, and not too much resulted in the markets. The US central bank has increased its key interest rate to over 5.25%, reaching its highest point in 22 year...

...this has all been in an effort to stabilize the economy and alleviate the pressures that have been driving inflation upwards.

In the past year, inflation in the US surged to a peak of 9.1%, significantly surpassing the US Federal Reserve's target of 2%. However, while inflation has significantly subsided somewhat as the impact of the war in Ukraine on food and energy prices has waned, this phase is not over yet...

...especially when it comes to fuel prices!

While the prices are still lower than the levels seen a year ago, the average national price for regular gasoline in the US pushed past $3.80 per gallon earlier in August, a noticeable increase from around $3.50 just a month prior.

Anyway, the greenback strengthened again on Thursday morning, and the Rand struggled for traction, remaining in the R18.90/$ region.

But then, on the local front, Stats SA unveiled encouraging figures concerning mining and manufacturing production in June 2023.

Mining production experienced a notable increase of 1.1% year-on-year - primarily propelled by gold & platinum, with seven out of ten categories of the manufacturing sector showing an annual increase.

Following the release, the local unit reacted favourably, improving slightly to R18.80/$ by the close of business on Thursday...

But before we continue, let’s take a quick look at some of the other major news headlines of the week:

• The UK economy surpassed expectations by expanding by 0.2% in Q2, outperforming predictions of zero growth. Additionally, the economy exhibited robust growth of 0.5% in June, surpassing the forecasted 0.2%. Both manufacturing and industrial production exceeded estimates, and a substantial rise was also observed in the volatile construction orders reading, which surged from -14.3% in the previous month to 2.6%.
• On Thursday, U.S. President Joe Biden characterized China as a "ticking time bomb" due to its economic difficulties, pointing out that the country's weak growth was a cause for concern. He emphasized that, "They have encountered certain challenges. This is concerning because when troubled entities face difficulties, their actions might turn negative." This statement followed Biden's signing of an executive order on Wednesday, which aims to restrict certain new U.S. investments in China's sensitive sectors like computer chip technology. Biden's recent statements echoed his comments from a previous fundraising event in June, during which he labeled President Xi Jinping as a "dictator."

Overnight, the dollar gained on most emerging currencies, and the Rand opened the final stretch of the week in the mid-R18.80s. The mood around the local unit remained relatively glum, too, after a week of violent taxi protests, political drama, and the increased risks of riots in the country all adding to the gloomy picture.

The Rand flopped around for most of the day before ending the week in the mid R18.90's region.

Second week into August; second red arrow!

The Week Ahead (14-18 Aug 2023)

Here's what we'll be eyeing up over the next five days:

• SA Unemployment Rate (Q2), Retails Sales MoM (Jun)
• EU/UK UK Unemployment Rate (Jun); UK Inflation Rate YoY (Jul)
• US - Retail Sales MoM (Jul), FOMC Minutes

As we reach the midway point of Q3, it’s been a tale of two halves up to this point.

July was a strong one for the Rand, while August is the complete opposite.

The one consistent thing, though, has been our Elliottwave and cycle-based forecasts, which have been tracking these movements and showing a few interesting patterns on the horizon.

Drop us a message if you would like to see more.

Until next week, safe trading.

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To your success~

James Paynter

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