The South African local currency has always made a habit of reversing trend when it was least expected.
And that is what makes the game of forex so interesting.
When there is no one left to turn negative, the market swings. And vice versa. It is all sentiment, and the patterns we see in financial markets are merely a reflection of our combined emotionally-driven decisions made.
So what does this have to do with this last week?
Well, there was almost no one to turn negative after two weeks of calamities - Zuma's #CabinetReshuffle, and then Gigaba's Budget Speech. Both of these events were more damaging than most realise.
And so, when there is no one left to turn negative, someone has to turn positive?
And there was - there was news of investors piling in on the opportunity to invest in SA when they had such an advantage with exchange rates. Also, exporters were smiling. Their profits had sky-rocketed if they exchanged their funds later rather than sooner.
However, this trend did not last long, as the good ground made up initially was lost in double-quick time...
So, another rollercoaster week - all this made for interesting viewing...
Lets review it
How It Happened (30 Oct - 3 Nov 2017) |
Friday's forecast showed that the rand's stability was expected to continue, with a target area of 13.97-13.79 in the coming days...but with an almost even bias after that...
Click to enlargeBut for the next couple of days the Rand failed to get in a direction as it zigzagged mostly sideways, despite some newsworthy events ...
Key takeaways:
Key takeaways:
- Terror attack in NYC - America is shaken with another terror attack, this time right in the heart of the country, New York.
- #BlackMonday - Protest against farm murders brings parts of the country to a standstill
- Rating agencies close in - many are expecting that #JunkStatus is a formality...will agencies give SA one last change?
- Zuma's Q&A in parliament - the President had to endure hours of questions being fired at him from frustrated opposition parties, who did not get many answers...
- New Fed Chairman announcement - President Trump selected a new chair for the Fed, Mr Powell...
- Bitcoin hits $7000 - the Crypto giant rolls on! Watch this space and stay tuned for our upcoming forecast of Bitcoin vs US Dollar...
- Economic Events - Fed Interest Rate, BOE Interest Rate & Non-Farm Payrolls!
Monday.
A fresh start after a long, and difficult week for the local currency. Was there light at the end of the tunnel after a good closing off of the previous week?
The Rand opened at R14.10/$ - some positive sentiment was visible as it had already gained ground since the midweek crash following Gigaba's speech.
News surrounding the Special Counsel Mueller investigation into Russian meddling in the election was the biggest talking point on Monday, as arrests were being made. Still nothing is linked back to Trump, but the feeling is that Mueller is just getting started.
And on the local front, #BlackMonday saw several parts of the country brought to a standstill as a protest against farm murders (of course, sparking off a racist and inflammatory diatribe from the likes of Malema)
Big announcement and events were due this week such as Interest Rate Decisions, New US Fed Chairman and Non-Farm Payrolls.
All focus was on how the Rand would get through these biggies...
One thing was clear...the damage done from the Mid Term Budget Speech was worse than expected.
As the dust settles, Ratings agencies are circling.
And many analysts fear a downgrade is now all but inevitable. It remains to be seen if the agencies will give the Republic a breather and wait until after the ANC elective conference.
Other news on top of that was that the petrol price had jumped higher on the back of the weaker Rand...
And SA bond investors were said to be preparing for for junk status.... Read the full article
Despite the array of events over the course of the next 3 days, such as #JunkStatus worries, Petrol Price Increases, SA Trade Balance, NYC Terror Attack and the Fed Rate decision, the Rand held its own. A lot of this was put down to Dollar weakness - there was uncertainty surrounding the next Fed Chair, and the attack in New York had put many on edge...
Also, the Fed kept the rates the same, which was seen as Rand positive.
Thursday was when the big news arrived - BOE Interest Rate Decision, US Fed Chair, and possibly the new USA tax plan.
Despite his failings, Trump is a president who is making things happen. A businessman attitude of surrounding himself with the right people to get the job done is beginning to pay off.
Overnight, the Rand gained ground fast. It touched as low as R13.90, validating our forecast from Friday.
But by the time the markets opened, we were back above 14.00
Reports are that South African bonds are continuing to be sold by foreign investors. This is largely in reaction to the MBTPS which has spooked ratings agencies and bond investors alike.
And the big announcements for the day arrived -
- The new tax cut proposal hit the table...and seemed to be surprisingly better than expected
- Trump selected the next Fed Chair - it was the obvious choice of Jerome Powell
- Zuma answered questions in parliament, as he was questioned intensely regarding farm attacks, government spending and more...
- BOE raised interest rates by 0.25% - the first time in a decade, but less than the expected 0.5%.
So a lot of events - and different reactions expected from the market.
However, the strangest was the Pound slumping to a low of 18.20/£...this was not expected by most economists.
As for the USDZAR, it hovered in the 15c range of 14.07-13.92, and ended the day just a touch under R14 to the Dollar.
Which brought us to Friday, the final day of the week - and not likely to be a quiet one.
And it started with a bang for the local currency, as it spiked 10c in less than an hour, going from R13.98 to over R14.08...
It was a harsh jump, with little causal factors as this was before Non-Farm Payrolls announcement - which of course brought on more volatility, pushing the Rand to R14.26/$...
After a quiet start, the rollercoaster effect was back with a bang.
And with that, the Rand closed out at 14.18...
The Week Ahead (6-10 Nov 2017) |
Well, the Rand starts the week on the back foot, and it looks like (in the short term that is) this could continue a tad further.
Not too much on the horizon this week from a data release point of view, so by rights, this should be quiet range trading week...
...well, that's all that economists would be looking at for direction.
Instead, we look at the market pattern's to give us direction, and this aways gives a far better picture that trying to decipher from news and events.
To see what we see, join us on the inside track:
Look forward to helping succeed~
Kind regards,
James Paynter
