Another week, another day of the Rand largely holding it's own against the Dollar.
Come what may, it seems the Rand just cannot be flustered despite the slew of potentially market-unsettling events.
The Ukraine/Russia conflict has continued to drag on, and despite every best effort to calm the storm, every time there is a chance at peace, something more comes up and the tensions rise yet again.
Yet the Rand soldiers on...
It is worth remembering though, that it is at points of extreme, where there is a belief the market can only go further, with despair on the one hand and greed and complacency on the other, that the market is primed for a reversal.
These cycles and patterns of emotions are what dominates the markets, and even if it just looks like organized chaos from the outside, it is actually real emotions and patterns that are playing out before our eyes, reflected in the market.
But let's get into the full review of all that happened, and try take some pointers for the days ahead...
Before we begin, here were the biggest headlines of the week:
- SA Unemployment - record unemployment numbers yet again as SA's figures slide further…but one has to say this is not really unexpected, despite the horrific results
- US Jobs - on the other side of the pond, the US continued to add to their job numbers, even though worries persisted that a slowdown was coming
- Fuel Prices - governments began to take action to try and control their spiralling costs, with some major measures being put in place
- Europe's Russia Dependence - nothing like a war to make persons realize that their country is actually relying on someone else's supplies to survive, as Europe is finding with Russia...
So getting back to the start of the Rand's week, we saw the local unit open up in a position of strength at R14.50 - and all eyes on it to see if that trend could continue.
But often is the case, the market was quick out of the gates, and before the days activity was done, the Rand was testing over R14.70!
Tensions remained on edge with the conflict in Ukraine, so these kinds of swings after a weekend of failed negotiations and failed de-escalations, are not altogether unexpected. Markets have 'pent-up' energy just waiting to spring out once trade opens up again!
Locally though, focus was very much on the effects that the war was having, and one of these was fuel prices as the numbers just kept going ever higher for a litre of petrol.
Such was the crisis, that it was announced that there would be a R1.50 reduction on the general fuel levy until the end of May to give consumers 2 months of breathing room.
This would be funded by around R6 bilion of the state's strategic oil reserves being sold, which meant that this would not impact government debt.
There were a number of other changes from the beginning of June, as Finance Minister Godongwana tried to juggle the different margins to ensure that businesses and households were not crippled by the rising costs.
Over in the US, Biden gave the go ahead for a massive release of US Oil Reserves to try and bring the market under control. There would be an additional 1 million barrels released per day from US Reserves, and the plan is for this to run for 6 months to try and bring oil and fuel prices under control. This is an enormous decision, and we will have to watch to see what effect it has on the market over the coming weeks and months.
Trump was the one that filled these reserves from their depleted levels and made the US energy-sufficient and a net exporter of oil. And from day one, the new administration has undone all the good - and now, instead of getting oil production back to peak levels to increase supply, Biden is depleting these reserves - simply crazy!
What a change of administration can do!
Getting back to the Rand, the market trended back-and-forth as global sentiment ebbed and flowed, with the market recovering to R14.40, only to flip back to R14.70 on Friday again:
The uncertainty of the Ukraine situation was beginning to get exhausting for markets, as the news from day to day seemed to sway expectations.
In negotiations, it seemed that Ukraine had proposed neutral status which Russia seemed open to...
...only for the supposed Russian retreat to be deemed to rather be a regrouping than a retreat as the week rolled on, and then this was followed up by a reported Ukraine attack on Friday, with 2 helicopters hitting a fuel depot in Russia - causing fires and a lot of damage. And so tensions escalated again.
This on the back of the worst quarter in more than 13 years for the Russian stock market. The ruble however firmed to 83 against the dollar, almost at the level it was before the war, as the unit appeared to benefit from its recent being pegged to Gold (so no longer a fiat currency) - an interesting development...
And then in other news:
- The big economic event of the week locally was the unemployment rate, with Stats SA finally releasing their much delayed report for Q4. It did not make for pretty reading…as record levels were hit, with another increase taking the official level to 35.3% in the last quarter of 2021. Everyone knows that this figure is likely not even close to reality, which could well be more like 50% or more...and yet, the Rand barely flinched at this news, and even strengthened in the days after!
- On the flip side in the US, jobs numbers came out Friday and confirmed a significant increase of more than 400,000 jobs, despite all the worries of a slowdown. Leisure & Hospitality, Professional and Business Services and Retail Trade were the biggest gainers, as the jobs market ended the last month of Q1 with a bang!
- And then there was the crisis of Europe's, as Putin played his hand by announcing that they were only be willing to be paid for their gas in Russian rubles as of Friday, or the gas lines would be turned off. Europe relies on Russian gas, and this demand would require them to open up local accounts in Russia to be able to make these payments. Of interest, this is something that Trump warned Germany about, that their reliance on Russian oil would make them “a captive to Russia" - which is now becoming a reality. It remains to be seen how this one plays out...interesting times!
Getting back to the local unit, Friday saw us track to R14.70, before some retracement to close out the day in the mid R14.60s...
...it had been another frantic week, but once again the USDZAR market had not had a breakout - but how long could this last?
The Week Ahead (4-8 April 2022) |
And just like that, Q1 of 2022 is done!
As we look to the days ahead, there are some economic events which could well play a small part in the overall moves of the Rand, as compared to geopolitical tensions, but there are some triggers in the days ahead with events in the US worth watching:
- US - Balance of Trade, FOMC Minutes, Jobless Claims
Lots of developments on all fronts, but no doubt the Ukraine/Russia situation and global implications continuing to be in the headlines - don't expect the rollercoaster to stop anytime soon!
As for the Rand, it has maintained its good run, but how much longer can this continue?
The next few days will likely be pivotal...
Please take our Rand forecasting service for a test-drive!
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To your success~
James Paynter
