The Rand's movements late on Friday prior (10th) put a real damper on the weekend for South Africans.
Not only had it lost almost half a Rand in just 24 hours to the US Dollar, but it had also reversed past a critical point, thus signalling that there was not going to be the immediate relief as we had anticipated, when all signals were pointing to a strengthening of the Rand.
How It Happened (13 - 17 June 2016) |
South Africa waited with bated breath with the Rand at R15.1936 on Monday morning. Monday's outlook in the Short Term showed the Rand was expected to strengthen before weakening further, with the bias thereafter being a 50/50 split between a reversal or a continuation higher (see below).
Click to enlargeThe rand steadied in early trade on Monday, but looked vulnerable to risk aversion before the Fed's interest rate announcement and a backdrop of nervousness around the Brexit referendum (of Britain's potential exit from the European Union) the following week.
Movements on Monday were very limited throughout the day until just before the close of business when the Rand reminded us of its ever-dangerous volatility, as it gained all of 35c in a single hour, before retracing 15c and ending the business day at around the R15.05/$ mark. After 5 o'clock, the Rand weakened further to just a few cents below where it had begun the day.
On Tuesday, the Rand weakened sharply against the dollar following Reserve Bank data that showed the first-quarter current account deficit to gross domestic product ratio widened to 5.0% from a downwardly revised 4.6% of GDP in the fourth quarter of last year.
This pushed the Rand to a high of R15.4046 later in the day (in the Short Term target area).
On Wednesday morning, the Rand stayed on the back foot against the dollar early on, with the news that the Rand was among emerging-market currencies most vulnerable to upheaval if Britain votes to leave the European Union, which is seemingly increasingly likely.
Thursday was a national holiday in South Africa and was expected to be a quiet day for the markets. However, this was not to be as it moved sharply to test pivotal resistance, reaching a high of R15.54/$ at about 5pm before reversing even more sharply to close the day at about R15.30/$. The volatility was put down to Brexit polls showing that the race will be tight next week whether Britain will leave the EU or not.
(As a valued subscriber to our emails, you should well know by now that it is never an event which causes these movements, but persons' reactions to these events, based on their feelings and perceptions at that time).
The Short Term forecast on Friday showed that although the market had topped out for now, and a move down was expected, there were still two possible outcomes with an even bias, with 14.9502 being critical to the short term future movements of the Rand.
Click to enlargeThe Rand strengthened slowly on Friday, down toward the critical 14.9502 mark, without making any big moves. At the close of local trading for the day, it sat around the R15.17/$ mark. Some way off confirming the downward move still, but more positive than when we had begun the day.
The Week Ahead (20-24) June 2016) |
As we head into the new week, the Rand has moved down below 15.0000, with the outlook being for more downside, with 14.8400 then 14.6517 the next levels to watch out for.
This week is expected to be very volatile leading up to the Brexit referendum on Thursday and then the release of US Durable Goods Orders as well as SA's latest CPI on Friday.
As always, an extremely important week ahead, which may well have significant longer term effects.
So once again, it is fasten-your-seatbelt time for the Rand - expect some big moves.
As always, I would love to hear your comments and feedback - please leave a comment below.
To your success~
James Paynter
