Rand weakens further as markets await US Stimulus

The Rand was in need of good news to start the week, and good news it got with big announcements from Ramaphosa on lockdown.

However, it wasn't enough to stop the week from going pear shaped for the ZAR.

It has been a rough 2 weeks for the Rand which have seen us lose nearly 100c in value.

This has come as a shock for those who think they can always project the past into the future...

…because that just is not how markets work!

Underlying patterns and sentiment are not as simple as that - but there are ways to see these moves coming, and we will get into that in just a little bit.

Read on for the full review!

Before we get into the week, here were the biggest headlines from the 5 days:

• Level 1 - it couldn't have come a moment too soon for the ZAR, as Ramaphosa made the big announcement!
• US Stimulus - Biden's stimulus plan has finally made entry into the senate, as all markets wait expectantly as they watch things unfold pending a vote on the bill...
• SA Financial Emigration - a major overhaul has been revealed, which will really change the way Saffers financially exit the country
• Oil Pushes Higher - nearly breaking $65, Oil has been the story of the last 12 months with an incredible turnaround taking place.

So to start the week, we had the Rand around 15 to the Dollar, after a torrid previous 5 days...

Many investors and importers were hoping for things to get back to "normal" for how the Rand had been the last few months - which had seen it with huge gains over the Dollar.

Unfortunately, that is just our emotions getting caught up their thinking - a very dangerous mistake...

Yet, as the week began, there was the perfect catalyst for massive Rand strength:

Ramaphosa had downgraded SA's lockdown to level 1!

More gatherings allowed, less curfews, 5 airports open and more!

What a moment this was, another huge step towards normality. Surely this would see the Rand recover the previous week's losses?

Not so fast...remember, markets do not move according to logic. They move according to sentiment patterns, which are often irrational as ever!

And so what we saw was some volatility and a minor recovery from the ZAR...

...but all too quickly that was over, and the Rand was back up and testing R15.45/$ on Friday afternoon!

And so we learn...there is always far more than meets the eye with markets - as there are thousands of different emotions, events and sentiment patterns that are all playing out at the same time.

For example, while this was happening in SA, there was the US stimulus debate happening over the pond - and this is going to be something that affects the whole world, with the US being one of the most influential economies, and with the USD being the major reserve currency, a devaluing of it would change every other currency.

So we need perspective. A step back from the noise, and simply look at what the patterns themselves are telling us.

And that was what we provided to our clients before the week began with our prediction on Friday, 26 February with our prediction on the USDZAR.

We saw the market moving up from where it was at R15.1294, toward the target area of R15.49-15.82. Unless the Rand broke below R14.8054, we would be seeing more ZAR pain with a weakening market. While this forecast was not yet validated (so this is a bit of a sneak peek!), the Rand did just this as it never broke 14.80, and was testing 15.45 by Friday afternoon (forecast image below - click to enlarge)

Clarity. Perspective. A blocking out of the noise. This is what you need to make clear decisions in the markets.

So then in other news...

• As we spoke about earlier, the debate around the US Stimulus raged for the whole week. Debates around jobless benefits, stimulus cheque criteria and more meant things were still hanging in the air on Friday. As always, even with there not being an election anytime soon, every bill is partisan, and it basically pits every Republican against every Democrat, and it only needs 1 or 2 to slip out of line with their party to sway the momentum completely. We await clarity on this, as it is a massive pending trigger...
• ...and while this was going on, there was both good and bad news on the jobs front. Non Farm Payrolls reported in at 379,000 which was a good gain, as employment dropped to 6.2%. However, it was another 745,000 jobless claims that made economists wince, as it showed the 'pandemic' lockdown effects were far from over. Continuing claims fell slightly to 4.3 million, still a substantial number…

Locally in SA, there was big news on Financial Immigration, as new regulations were released. As of 1 March 2021 formal financial emigration has changed in line with Governments goal of modernising exchange control. Currently, South African tax residents can withdraw from a retirement annuity fund, pension preservation fund, or provident preservation fund when they formally emigrate from South Africa. This was the gist of the news:

The concept of “emigration” and the South African Reserve Bank’s approval process via the MP336(b) form will be terminated.

• Emigration will no longer involve the Reserve Bank only SARS
• Going forward, only the event of an individual “ceasing to be a resident for tax purposes” in South Africa will be relevant.
• Transfer allowances for South African Residents will remain intact i.e. formal emigration will only be applicable if you’d like to become a tax non-resident.
• The current process of blocking an emigrant's remaining assets in a special “blocked funds account” will fall away and all transfers will be handled as normal fund transfers.

While we are not experts in this field ourselves, we have partners who are excellent in dealing with these sorts of questions. Please reply to this email if you would like us to put you in touch.

Also, motorists will need to dig a little deeper into their pockets, with the price of petrol having gone up by 65c. This comes after Oil hit over $66 a barrel on Friday, having fully recovered from the collapse of early last year. Oil's chart from the last 12 months is just an amazing picture!

And getting back to the Rand, we saw the local unit eventually close out over R15.40 on Friday SA time before retracing back slightly...what does the next week hold for the battered ZAR?

And as we roll into the next week, our first point to cover is the several economic events that could provide potential triggers, with with a few big ones to watch:

• SA - GDP, Current Account Q4
• USA - Consumer Price Index, Jobless Claims
• UK & EU - GDP, ECB Interest & Deposit Rate Decision, Monetary Policy

As we have seen from last week - while some very possible triggers in the above, don't rely on them to give us any direction.

It's been a volatile few weeks, and a rough ride already so far this month.

But expect some more March madness!

Based on our current pattern analysis, we are expecting the Rand to extend its losses, but will be watching how the markets reacts around some key levels shown in the latest charts, which will give some direction for the weeks and months ahead.

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(You don't want to regret not having done so this time next week...)

Look forward to hearing from you.

To your success~

James Paynter