Trade Wars and strong Dollar unravel the Rand

A topsy-turvey old week for the Rand, as it battled to get on top of the Dollar.

It was quite a week on the global stage, as the US and China continued to spar over trade disagreements...

...and things started to get a little messy between the two nations.

And then locally, the aftermath of the election was being counted, and a look forward toward the new cabinet.

Let's get into the full review...

Here are some of the biggest headlines we took note of this last week:

• The Trade War simmers - ever since Trump's tweet as to the new tariffs, things have not quite been the same on the global trade stage...
• Cabinet Reshuffle - a lean cabinet was what Ramaphosa needed to put together, without bringing further rifts into the ANC. Everyone had their prediction of how this was going to work out
• Moody's warning - whenever there is a statement from Moody's, the whole country shivers...this week, they issued another warning for SA
• Zim load shedding - it's not just Eskom who is battling, but Zimbabwe too was on the brink of energy collapse

Well, for the Rand, the week was looking to start on the front foot after a good post-election thrust..

The final counts were out for the 2019 election, with the stats looking like this:

• The ANC retained the majority in the 2019 general elections with 57.5% of the votes, down from 62.1% in 2014.
• The DA also down to 20.77%
• And the EFF up to 10.8%.

A strong finish for the market on Friday meant the Rand opened around R14.15/$ and there was hope of a break below R14 to the Dollar with the momentum that had built up...

However, that was not to be!

From the open on Monday, the market turned to hit R14.38 before the US close!

The Trade War had taken a turn for the worse:

China retaliated against the US (after the US increased tariffs on USD 200bn worth of Chinese goods) by increasing tariffs by 25% on US imports worth ​USD 60bn. Investors flocked back to safe-haven assets, leading to global equity markets and EM currencies feeling the pressure.

This would not have made Trump happy, as he had warned China NOT to retaliate.

And retaliate they did.

The long term view though, China has more to lose, as the below stats show - and Trump knows it.

So, the game of cat and mouse continues, with smaller emerging markets caught in the middle of it all.

Tuesday brought local unemployment figures, which did not make for particularly happy reading. SA’s unemployment rate for the 4th quarter 2018 rose to 27.6%...scary stuff.

But then Trump tweeted that a trade deal might be on the cards in the next 4 weeks (Don’t hold your breath!).

This provided the trigger for the Rand to break lower again, back down toward R14.20...

The week just brought more of the Trade War ping-pong as President Trump announced he would delay automobile tariffs on Chinese imports.

Then it was Iran, as tension between them and the US saw oil spike to $72 per barrel - more petrol price increases anyone?

And then the big one for the week:

Moody’s warned SA that if they don’t address the country’s credit issues, a downgrade could be on the cards. This is one of the many different factors that Moody's is considering, and is certainly one of the most concerning. Moody's already issued a statement on this some time back saying that SA's debt was increasing, but manageable for the time being.

But this went one step further in saying that despite SA's credit profile being "resilient to shocks", it was likely to continue to erode.

Despite this news, the Rand strengthened well to break down to that R14.12 level by midday Thursday!

Some of the other big news headlines for the week:

• One of the other moves from the US this week that infuriated China was the decision to blacklist Chinese phone manufacturer, Huawei. Huawei has a long history with the US of selling quality, cheap phones, but with the catch of being filled with spyware to spy on US citizens. This has led to the decision to blacklist them and their affiliates in the US, resulting in an angry retaliation from China.
• With the cabinet reshuffle due any day now from President Ramaphosa, he has quite a task on his hands to try and balance the ship while naming a lean cabinet. The ANC divisions are already wide and complex, and he has to try avoid making those worse. On the other hand, he cannot afford to waste more of taxpayers money, as Fin24 reported that the cost of SA's Cabinet was around R730m in 2014... Crazy!
• Figures are yet to be released as to SA's GDP for Q1 of 2019, but concerns are that it will be very poor. This remains one of Ramaphosa's biggest headaches, as the lack of growth is impacting on an already dangerously high level of unemployment.
• And finally, the problems over the border in Zimbabwe have not yet stopped, as they began to start load shedding due to drought at the Kariba dam. This being one of their main sources of power meant the country was due to be brought to its knees with expectations of a 33% loss in power generation...and who else besides SA's Eskom is being called upon to assist. This is hardly even believable considering the problems they have just supply local power...!

And that was the news for the week...

...but the Rand wasn't going end this week in any style, as iFriday saw the Rand capitulate in horrible fashion, soaring from its low on Thursday of R14.12 to break over R14.40 by the close of the week...

...and it was all Dollar momentum as we headed into the weekend.

This week sees several medium impact economic news out of the US, and of course, and interest rate decision locally (where the MPC are between a rock and a hard place) and news of the Cabinet reshuffle.

And then of course we have the next plays on the US-China Trade War - with emerging markets being taken along for the ride...

The next week could be critical for the Rand's direction the next month or so - we will be watching closely as the market progresses to confirm our short to medium-term wave counts and predictions.

Join us today as we do so.

Simply use the link below to get our very latest roadmap for the Rand for the next few days, weeks and months ahead against the Dollar, Euro and Pound, based on the latest Elliott Wave count.

And get our bi-weekly updates for the next 2 weeks. All on us... Gratis...

As always, appreciate your feedback and thoughts.

To your success~

James