Welcome to this week's edition of the Rand Review.

In a week of important economic events, the South African Rand experienced notable fluctuations against the US Dollar.

The spotlight last week was on local inflation results and the consequential interest rate decision that followed…

…and while the good news for South Africans, at least for now, is a breath of relief concerning interest rates in December, lurking beneath this positive development are lingering concerns that are mirrored globally.

The US Fed adopted a hawkish tone in their most recent FOMC minutes, which initially helped the greenback recover a bit the losses it incurred the previous week before giving it back again…

…this should spelt good news for the local Rand, but to no avail, as the local unit reversed all the prior week's gains - plus some!

Fortunately, our forecast modelling saw it coming....

Let’s get into the review...

Key Moments (30 Oct - 3 Nov 2023)

These were some of the major headlines over the last five days:

• SA Inflation Rate -South Africa's latest headline inflation figure surprised markets by climbing higher than expected, but the Reserve Bank opted to stand still for another month with the current rate still within its target range.
• US FOMC Minutes -The minutes of the October 31 to November 1 meeting of the Federal Open Market Committee (FOMC), acknowledged the impact of higher interest rates but the overall tone was perceived as a hawkish one.

After a massive gain the prior week, the Rand got the week started at R18.30/$, but found itself on the backfoot early on, dropping to the mid R18.40s by early afternoon. With little economic data expected early in the week, investors were seemingly biding their time for the release of the FOMC minutes…

…which would likely provide a few clues into the thinking of the monetary committee in the world’s top economy.

During their recent policy meeting, US Federal Reserve officials reached a consensus to "proceed carefully" and consider raising interest rates only if efforts to control inflation faced setbacks.

They highlighted their acknowledgment of the impact of higher interest rates on households and businesses, underlining the need for caution in their approach. The minutes also indicated apprehension regarding the limited progress in reducing inflation in core services, excluding housing, in the United States.

Ultimately, the overarching interpretation of the FOMC minutes leaned toward a hawkish stance, aligning with the prevailing market sentiment that global inflation is poised to persist at elevated levels…

In recent times, a hawkish tone from the Fed has generally translated into US dollar strength...

...and it was no different this time, with the Dollar Index gaining against it peers through to mid-week before giving it all back.

The Rand tanked following the release of the minutes, falling from R18.32/$ at the start of Tuesday to R18.62 for a single greenback by day’s end. Wednesday brought us the all-important local inflation results, which showed that annual consumer price inflation in South Africa rose to 5.9% in October 2023…

…marking a notable increase from the 5.4% recorded in September.

The main culprits behind the rise were food and non-alcoholic beverages, which rose by 8.7% year-on-year, while the transport sector saw a 7.4% year-on-year increase. Sentiment seemingly soured toward the local unit thereafter, and by early evening, the Rand was changing hands at a shade below R18.90/$.

However, 24 hours later, and despite the uptick in headline inflation numbers, the South African Reserve Bank's MPC opted to maintain interest rates for the third consecutive meeting…

…keeping the repo rate at 8.25%, with the prime lending rate remaining at 11.75%.

Fortunately, this time, the vote to maintain interest rates was unanimous, with all committee members in agreement. But, despite the consensus, the central bank adopted a slightly hawkish tone, suggesting that rate cuts might only be considered in the second half of 2024.

While acknowledging economic uncertainty in South Africa, Governor Lesetja Kganyago highlighted that headline inflation is expected to end the year at 5.8%...

…revised down from the previous estimate of 5.9%, and is anticipated to average 5.0% in 2024, stabilizing at 4.5% in 2025 and 2026.

The decision taken by the MPC did little to impact the Rand though, as it was still trading above R18.90/$ heading into the Black Friday frenzy.

Then in other news:

In the previous week' episode of the Weekly Rand Review, we touched on the Rand Manipulation that has dominated economic news headlines over the last couple of weeks. And now, the banks accused of rigging the Rand are facing increasing pressure to confess following Standard Chartered Bank's admission of its involvement in the cartel.

Among the banks facing scrutiny in the case are Standard Bank, FirstRand, Nedbank, Bank of America Merrill Lynch International, BNP Paribas, and Investec.

The spotlight is also shining brightly on why authorities settled for R43 million when Standard Chartered, in a similar matter, settled with US authorities for half a billion Rands a few years ago. The discrepancy in settlement amounts is drawing attention and has prompted further investigation into the handling of the case.

However, it wouldn’t be South Africa if there wasn’t a bit of controversy!

During a media briefing, Minister in the Presidency Khumbudzo Ntshavheni stated that the Rand manipulation saga served as a reminder that South Africa's private sector showed no interest in the country's development.

The Minister added: “That is why they also self-feed into the narrative that there's a collapsing state, there is a collapsing economy because that is what they wish for and their actions do that but despite those efforts, the South African economy continues to be resilient.”

Unsurprisingly, Ntshavheni found herself in hot water over her remarks…

…especially when considering that businesses and the private sector in South Africa have been actively partnering with the government to assist in delivering services and fostering the country's growth for years. And what about the mismanagement, corruption and many billions that have been misappropriated by the government/public sector the last three decades?

Oh well…this probably won’t be the last time we hear controversial outbursts while this story continues to unfold.

The Rand struggled further against a strengthening dollar on Friday and with no major economic data expected, there was nothing to save the local unit from a big red arrow.

After opening at R18.82/$, the Rand lost a further 10c to the greenback by lunch, and after bouncing around for most of the afternoon, we ended the week in the R18.80s.

A complete reversal of the previous week’s gains - plus!

The Week Ahead (27 Nov - 1 Dec 2023)

Here's what we'll be eyeing up over the next five days:

• SA:PPI YoY (Oct), Balance of Trade (Oct)
• EU/UK:HCOB Manufacturing PMI Final (Nov)
• US: ISM Manufacturing PMI (Nov)

A thin week of data is expected as we prepare to wrap up November, but that doesn’t mean it cannot be a profitable one.

Last week was a belter for our subscribers, as our good ol’ Elliotwave-based forecasts landed us right on the money yet again.
Don’t forget, you can still get access to all our forecasts using the link below.

Final month of the year peeps - we’ll see you in December!

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Please take our Rand forecasting service for a test-drive!

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To your success~

James Paynter

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