"All hail the mighty TZAR!" were the words which resounded around the trading floors on Monday morning, 20th of June. However, the same optimism was not quite so apparent come the morning of the 27th of June. Brexit had caused an absolute humdinger of a day on Friday for global markets, with the Rand being no mere onlooker, with sharp movements which we have not seen since December/January.
A week which had begun so well, ended in rather a mess. But let's take you through the story of the week, so that we can give you some insight:
How It Happened (20-24 June 2016) |
Monday's outlook on the 20th in the Short Term (see below - click to see full size), gave the indication that there would be a strengthening, as the Rand continued to have positive movements.
Click to enlargeAlmost immediately after markets opened on Monday, the Rand began to strengthen, breaking through the pivotal 14.9502 from last week's forecast, and continuing to move down. It eventually closed out the day of business hours at a splendid level of 14.78, having hit a low of R14.74/$.
The tide had turned, and this was the beginning of the confirmation of further good movements for the Rand in the coming weeks and months.
Rumour has it that the Rand was buoyed along with other emerging market currencies by lessening fears of Britain voting to leave the European Union.
Tuesday provided further good news, with the Rand continuing to strengthen, and passing the critical 14.6517 mark to make a 7-week low against the Dollar, thus validating our forecasts again, and confirming that the Rand was indeed in a good space right now, allowing South Africa to breathe a slight sigh of relief.
The Rand gave back some gains against the dollar on Wednesday, with traders and analysts expecting caution to prevail due to hype-filled expectation of Brexit on Thursday.
It closed out at a rate of about 14.65 to the Dollar, as all waited in anticipation for the big event on Thursday.
Some early movement was seen on the morn of the big day, with the Rand gaining about 10c to the Dollar from the close of business on Wednesday.
This meant that at the start of the working day, the market was sitting at about R14.55/$ - some of the lowest levels we have seen in a long time.
With such a critical day ahead, our forecast outlook (see below - click to enlarge) suggested that the Rand will retrace a tad, before continuing its downward movement. This retracement prediction could have been due to pre-match jitters of Brexit, or possibly that a non favourable outcome was coming later in the day. Either way, the overall direction was clear, even if there was likely to be some choppiness along the way.
Click to enlargeThe Rand continued to move in the right direction, hitting a low of R14.30/$ around midnight on Thursday, with the expectations still being that the Remain Vote would prevail.
But just as everyone was thinking that all was well and good, as the counts came in, surprise result of Brexit came out... And then the cat was amongst the pigeons.
Come 08h00 on Friday morning, the Rand had hit R15.66/$ overnight - R1.38 higher than it was just 5 hours before...
The effect was worse than Nene's firing. Much, much worse.
England was in turmoil, with the country being almost perfectly 50/50 split as to leaving the EU. When the final results came out, there was always going to be unhappiness, as half the country would be not getting what they wanted.
A sequence of events followed throughout the day. David Cameron resigned. The Pound had its biggest one-day move against the US Dollar in the history of time. Virtually every market felt shockwaves from the surprise results of the final vote.
The volatility of the Rand continued, as it touched R14.73/$ by 11h00, before retracing again to eventually end the day at just above 15 to the Dollar. A postive week, ruined in one fell swoop.
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The Week Ahead (27 June - 1 July 2016) |
The week ahead is one filled with peril. The Rand is left exposed and volatile after Friday's madness.
Global markets are braced for more fallout from the Brexit shock, with a revolt in the Labour party ranks and a renewed drive for independence by pro-Remain Scotland.
Major efforts are expected by British and European officials to calm the markets, but volatility is likely to remain with the uncertainty over the effects of the shock vote.
If you have Rand currency exposures, you are going to need to prepare yourself, as your emotions can and will play havoc in these markets unless you have an objective decision-making strategy.
After a week like that, I am sure you would have realized that if you don't have a weather report of where the Rand is likely to be going, you are in serious danger.
As always, I would love to hear your comments and feedback - please leave a comment below.
To your success~
James Paynter
