Well, after an encouraging week prior, the Rand had a torrid couple of days...
...as it lost over 3% of value in a couple of days to hit its worst level in 3 years before managing to claw back some ground. Though it wasn't all about the Rand though, as the Dollar continued its January resurgence.
Last week was marked by a lot of talking, be it the 'elites' at the Davos World Economic Forum or central bankers giving their insights as to where they see inflation and interest rates heading. But there was also some action, with things hotting up in the Red Sea and US primary season...
...and non-action, with Fitch's rating decision on Friday.
So, let's get into it - and share some of the details.
Key Moments (15-19 Jan 2024)
Some highlights from the past week were the following:
- World Economic Forum (WEF) Annual Meeting: World leaders and elites had their annual indaba deciding what the world's problems were - and how they should be fixed ... and gave their insights on the global economy for 2024
- Damper on Rate Cut Hopes: Statements from central bankers seemed to pour cold water on hopes of rates cuts coming soon.
- Fitch Keeps Rating Unchanged: Rating agency Fitch kept South Africa's credit rating unchanged despite the challenges it faces
The week got off to a slow start for the Rand, due largely to the US public holiday, opening in early trade around R18.60/$ and pushing higher to test R18.71...
...before meandering back down to R18.60 in after-hours trade. It was also the first day of the week-long World Economic Forum (WEF) Annual meeting ...
...you know, that week-long bash, where the world's leaders and elites all fly in on their fuel-guzzling private jets...
...and talk about what they believe the world's 'problems' are (or are going to be) - and how these 'problems' should be 'fixed' by the rest of us...
...and (ahem) who actually benefits from these 'solutions' again?
...wait for it...'Rebuilding Trust'! (was there ever?)
Anyway, apart from a lot of hot air (aka global warming), it was interesting to see their report on the global outlook, with the majority of their economists expecting the global economy to weaken in 2024.
Their report also saw an easing of inflation and progress in artificial intelligence (AI), but warned of ongoing challenges such as sluggish economic activity, stringent financial conditions, and increasing geopolitical and social tensions.
Anyway, to get back to the Rand...
...Monday's slow start was the proverbial 'calm before the storm'!
Come Tuesday, everything started unravelling rather fast, as the Rand capitulated, losing over 40c as it tested R19/$ in after-hours trade before falling back slightly overnight...
...how quickly things change!
And the rot continued on Wednesday, as the local currency tanked to hit R19.18/$ - its worst level in 3 months. This came amidst statements from Reserve Bank Governor Kganyago, ruling out cutting interest rates as inflation was still too prevalent in the country, saying “Our real rates are not particularly high, and inflation has come down - it's within target - but it is not quite where we would like to see it.”
This came after ECB member Holzmann earlier in the week had also poured cold water on any hopes of an early rate cut in Euroland. But it was not really all about the Rand, as the US Dollar was given a boost with US Retail Sales coming in better than expected (putting a damper on any rate rate cut hopes in the US)...
...and also seemed to be lifted by Donald Trump's overwhelming primary win on Ohio on Tuesday night.
Having sliden by almost 60c in less than two trading days, the Rand finally managed to dig in its hills and claw back some ground to end the day a few cents above R19/$...
...and then picked up where it had left off on Thursday to test push back down below the psychological R19 level.
In other news...
- Things seemed to be hotting up in the Red Sea, with the Houthi rebels striking a US-owned ship off the coast of Yemen, less than a day after they launched an anti-ship cruise missile toward an American destroyer in the Red Sea, escalating tensions in the region after American-led strikes on the rebels.
This, together with Israeli's war with Hamas in the Gaza strip has impacted on global shipping, with this being a crucial corridor linking Asian and Mideast energy and cargo shipments to the Suez Canal onward to Europe.
- Apart from climate change (of course), artificial intelligence (AI) seemed also a big subject at Davos. According to IMF chief Kristalina Georgieva, AI posed risks to job security around the world but also offers a "tremendous opportunity" to boost flagging productivity levels and fuel global growth. According to the IMF, it is expected to affect 60% of jobs in advanced economies, but have less effect in developing countries..
On Friday, the Rand opened in SA trade in the mid-R18.90s, but seemed to lose strength through the day as it tested R19/$ again in anticipation of international ratings agency Fitch credit rating update...
The announcement, when it came later on Friday, was some relief for South Africa, with Fitch keeping South Africa’s credit rating unchanged at BB- with a stable outlook (on a par with S&P's long term debt rating).
Despite the stable outlook, Fitch flagged concerns about the country’s battling economy and its rising government debt, but noted the government’s planned interventions to address challenges in the power and logistics sectors were a sign of good news.
Fitch said it was also keeping a close eye on policy uncertainty and ANC's governance issues in the build up to this year’s general elections. And with that, the Rand stalled to end the day - and a rather nasty week - still flirting around R19/$.
The Week Ahead (22-26 January 2024)
Here's what we'll be keeping our eyes on for potential market triggers the next five days:
- SA: Inflation, Interest Rate Decision
- EU/UK: ECB Interest Rates Decision,
- US: Home Sales, Durable Goods Orders, GDP Growth
We said last week to not expect the Rand to be docile for the rest of the month...
...and boy, it didn't take long for this to prove true!
What made us say this?
Well, one thing is that after a period of consolidation, you can always expect a breakout...
...and that is just what we saw! But what way is always the question!!
Well, our trusty forecasting system had given us give us a heads-up the week prior as to which way it was likely to head...
...and helped us and our clients keep one step ahead of the market (see below).
(Click to enlarge)
As we said last week, flying blind can be costly in this market - you need to fly by instruments, not gut feel!
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!
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.
(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
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