Welcome to the Weekly Rand Review, where knowledge meets opportunity, and together, we navigate the captivating world of our unique local currency.

After experiencing three consecutive weeks of gains, which had managed to erase the previous 7 weeks of losses (which coincided with a series of local political and economic challenges), the Rand was overdue for some short-term change of fortunes, as we show below.

In the absence of significant local data points to ignite investor sentiment, the currency found itself being triggered by global events…

…once again highlighting the interconnectedness of our modern financial world.

A thin but important week. Let’s recap the main events:

Key Moments (19-23 June 2023)

Here’s what made the headlines last week:

• SA Inflation - Stats SA provided its latest update on inflation numbers showing that annual inflation slowed notably in May but still remains outside the South Africa Reserve Bank’s target range.
• ‘Hawkish’ Powell - - US Fed boss Jerome Powell affirmed in his testimony on Wednesday that more interest rate increases are to be expected until additional progress is made on bringing down inflation.
• UK Inflation- - Year-on-year inflation in the UK held steady at 8.7% in May, but core inflation rose to 7.1% from 6.8% in April, marking its highest level since March 1992.

Last month, the Rand endured one of the most severe beatings in recent memory, leaving investors emotionally drained and seeking a glimmer of hope.

The Rand had been battered relentlessly, and emotions ran thin, as poor political decisions and a deepening energy crisis eroded confidence in the local economy.

For weeks on end, investors and exporters grappled with a sense of frustration and impatience...

...seemingly filled with pent-up energy, yearning for a spark to rekindle their enthusiasm...

...but this hopium eventually gave in to panic and then despair, fearing the worst was ahead...

...and if you were an exporter, to complacency and euphoria, expecting the market to continue higher still!

Amidst all this doom and gloom, our analysis (which tracks this sentiment) was showing something VERY different from what many thought possible...

...and the fact that the sentiment was so negative was a confirming signal that we were near a significant top in this market (even our own emotions needed to be kept in check with all the negativity around).

Below is a copy of our outlook for the next few weeks for the Rand vs Dollar published on 12 May 2023, which predicted a final thrust higher before topping out in the 19.58-21.00 area and falling sharply...

(Click to enlarge)

...which is exactly what it did, rising before topping out at 19.91 on 1 June before punching lower in spectacular fashion...

And such is the nature of the markets - and why it is essential to have an objective roadmap (to offset our emotion-driven decisions) which is based on these underlying cycles of sentiment - in smaller and larger degrees.

Because just as the the big reversal caught many off-guard from the beginning of the month, so the last week's movements again likely caught many by surprise...

But again, our short term analysis published on the Friday prior (copy below) was giving a heads-up of an imminent bottoming out before rising towards 18.7822.

(Click to enlarge)

It was going to be interesting week indeed!

The Rand started the week at R18.23/$ and traded mainly sideways through that day, with no major triggers expected until later in the week.

Like most emerging currencies, the Rand’s direction was likely to be dictated by global sentiment and triggers, and we started to see that by Tuesday afternoon as the greenback edged higher after data showed that US housing stats surged in May.

The increase in US homebuilding and permits issued for future construction suggests that the housing market may be turning a corner after relentless clobbering by the Fed’s interest rate hikes.

The improvements on the housing front helped bond and longer-term investor sentiment, and the dollar benefitted as a result.

After a brief spike, the Rand settled in the R18.40/$ region ahead of the only major local event for the week in the form of inflation results.

South Africa’s consumer inflation slowed to 6.3% year on year in May, falling from 6.8% a month earlier, according to Stats SA’s results released on Wednesday.

The latest blurp marks the lowest reading since April 2022, at which point the rate was 5.9%, and it also showed a 0.2% decline for the month.

Core inflation stood firm at 5.2% for the year to May, only marginally down from 5.3% a month ago.

Food, transport and housing utilities were the main contributors to the headline improvement, though the annual rate for food and beverages also showed a notable drop to 11.8% from April’s 13.9%.

Other worthy mentions include the annual rate of fuel, which decreased again in May to 3.5% from 5.0%; however, annual health inflation ticked up to 5.8%, a full percent up from January this year.

The local unit traded in the mid-R18.30s through most of the day but gave up ground on Thursday as Jerome Powell beat a hawkish drum, suggesting that the US central bank had not reached the end of its tightening cycle.

The Fed boss made clear that the decision not to push rates higher at the last meeting was more of a respite that an indication of their plans over the near future…

…and also elaborated that the FOMC foresees at least another 50 basis point increase by the end of the year, noting that inflation has cooled but still remains well above the Fed’s 2% target.

He briefly touched on the recent banking scares that rocked investor sentiment earlier this year and also emphasised that ongoing decisions will be made based on incoming data rather than a pre-set course.

The markets reacted, and by Thursday evening, the Rand had breached back above R18.50/$, on course for its first week in the red this month.

Before we wrap up the Rand’s performance for the week, here’s a quick look at some of the other headlines from across the globe:

• Data in the week showed that Britain's annual inflation rate remained unmoved in May at 8.7% and still the highest among all the G7 nations. The data piled pressure on the Bank of England and the government, and the decision taken was to raise the country’s main interest rate to 5.0% from 4.5%, which is its highest since the 2008 financial crisis and the largest increase since February.
• US-Chinese tensions continued to brew in the week as US President Joe Biden referred to Xi Jinping as a dictator when speaking at a fundraiser on Tuesday about the Chinese spy balloon that was shot down in US airspace in February.
  The Chinese have since reprimanded the US, while the spokesperson of the Chinese embassy in Washington provided a list of issues they had with Biden’s statement and added that they urge the US to take action to undo the negative impact and honour its own commitments or it will have to bear the consequences.

As Friday rolled around, and with investors being given time to digest the Fed’s statements in the week, emerging markets weakened further as concerns about global economic growth seemingly weighed on sentiment...

...with the Rand taking further pain, as it opened in the mid-R18.50s but was forced backwards by lunchtime and closed the week around R18.72/$ after hitting R18.77 earlier.

A painful step backward for the local unit...

...but another satisfying week for us in terms of our forecasts...

...as the Rand moved EXACTLY in line with what we had predicted the week prior!

The Week Ahead (26-30 June 2023)

New week, new hopes.

Here’s what we’ll be keeping an eye on over the next five days:

• SA - Consumer Confidence (Q2), PPI YoY (May), Balance of Trade (May)
• EU/UK - EU Inflation Rate YoY Flash (June), Unemployment Rate (May)
• US - CB Consumer Confidence (June), Fed Chair Powell Speech, GDP Growth Rate QoQ (Q1)

The end of a disappointing week for the local unit - but as we have shown - one hat was predictable - before the time.

If anything, last week was a reminder that even in the absence of major events, investor sentiment never sleeps and is ultimately what drives the market.

Our forecasting models are showing some very interesting movements over the next few weeks, so be sure to check them out.

Until next week. Keep those emotions in check!

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

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