Rand capitulates by over 100c against US dollar – Where to now?

Rand capitulates by over 100c against US dollar - Where to now

Well, well, well…it had to finally come, didn’t it? After the Rand had showed simply unparalleled stability over the last few months, something had to give.

And it certainly did, in spectacular fashion!

The local unit had been seemingly in a different world, completely unfazed by global turbulence and uncertainty, which is a far cry from what we have come to expect of the Rand market!

But all good things come to an end, as was the case this last week.

It was a shortened week with the Easter Monday, but a lot packed into it… …so let’s get into the full review!

Key Moments (18-22 Apr 2022)

Before the week began, we shared an outlook with our subscribers giving them the outlook for the USDZAR market ahead of time. This was issued on the Wednesday heading into the long weekend, with an updated view on the next few days.

The market has been playing cat and mouse with the Dollar for some time now, but our predictions were expectant that we either had seen a bottoming at the R14.39 level or we were very close to doing so, and should be expecting the market to reverse over the R14.81 mark, which would confirm a move yet higher and weaker for the ZAR, with 15.0581 being pivotal thereafter.

And getting on to the week beginning, despite it being a shorter week of 4 days, there was plenty of action and big headlines over the time:

  • Eskom’s Dire Straits – not the band, but a disaster brewing…the power utility company is on the ropes as the country moves into winter, and it sits in a worse position than ever before
  • Flooding Woes – the worst flood in a hundred years has left Kwa-Zulu Natal absolutely devastated, as the perfect storm combined for the Rand…
  • Stock Market Woes – inflation fears and the ongoing Ukraine crisis left the US Stock Markets in rather a mess come the end of the week!

So, getting back to the local unit and it’s moves, the week began with it around 14.60 to the Dollar.

One of the enormous factors over the last few weeks which has been baffling has been the Rand’s un-coupling from the Dollar.

Dollar strength is factored through the DXY (Dollar Index), which is the Dollar pitted against a basket of currencies. Typically what you will see is the Rand weakening whenever the DXY is strengthening or vice-versa…

…but that hasn’t been how the last few weeks have gone, which has been both fascinating and worrying.

But this week seemed to be a case of the perfect storm bringing things back to normal, as the Rand tanked together with the Dollar strengthening further.

As far as triggers go, Storm #1 was Eskom. The local power supply was in a terrible position, and warned of 101 days of load shedding (approx 3 months) during the course of this winter as a worst-case scenario. This was after Stage 4 load shedding was implemented on Tuesday, following failing generating units.

But as quickly as it had come, by Friday night, load shedding was to be suspended. So the volatility of the situation is more worrying than anything else! And looking now to the winter which always puts pressure on power supply, who knows what the next few months have in store…

And then there was Storm #2, and this a literal one as horrific flooding devastated the Kwa-Zulu Natal area, with more than 400 killed as of mid-way through the week, and 10,000 troops from SA military being deployed to help relief and rescue operations. Flood damage is anticipated to be approx. R1 billion…and this is still early stages of projections. All this was too much for the Rand, and all the while with the Ukraine uncertainty continuing to wreak havoc in markets and supply chains, the local unit crumbled.

In just a few days we saw it move from R14.60s on Tuesday to hit R15.68 by Friday, with similar collapses been seen against Euro and Pound…

…in just a few days, the Rand had erased more than 50% of its gains since the Nov 2021 high…and endured its worst week since the blow-off in March 2020.

It was a quite crazy turn of events, but right in line with our forecasts which we had issued the week before… We had also updated these on Tuesday ahead of the major breakout, with the Rand already at R14.97, but expectations were for it to move further to R15.12-50 and if that top level was broken, we could expect to go further!

So while this was a shocking few days, it was also not a surprise, as our Elliott Wave based forecasting system had been anticipating such a reversal – and the perfect storm of events just triggered the underlying sentiment.

And speaking of storms, there was another one brewing in Ukraine as the fight seemed far from over, with Boris Johnson warning it could last until the end of next year, and Russia appeared to make their intentions clear that they wanted full control of the South in addition to the Eastern Donbas region.

And in the US, Fed member Bullard mentioned interest rates could reach 3.5% in the US at year-end, stating that inflation is “far too high”.

This was all far too much for US stock markets, as we saw the Dow drop more than 700 points on Friday in its worst day since early March, and was headed for its 4th straight weekly loss…

…it certainly looks like the bubble has finally burst for global stock markets, and we could well be on the cusp of a significant market crash…

As for the local unit, it made it’s way to close in around the R15.60 level… What a week, time to take a breath!

The Week Ahead (25-29 Apr 2022)

So as we head into the last week of April, another month just having flown by, we are watching with interest the non-economic factors more than anything else, as all of the crises of this last week bubble will likely over into the next…

…but there are some triggers for us to keep an eye on:

  • SA – Balance of Trade
  • US – Durable Goods Orders, Trade Balance, GDP Growth Rate, Inflation Rate
  • EU – GDP Growth Rate

As for the Rand, its fortunes have turned dramatically – and based on our forecasting system and the underlying sentiment, we are expecting it to remain under pressure, with any pullbacks likely being short-lived. We will be watching this one with interest. Bottomline: It looks like another rollercoaster week is ahead of us!

Please take our Rand forecasting service for a test-drive! This will give you access to the same charts we are to give us and our clients the likely direction of the Rand – ahead of time, enabling you to make educated and informed decision. Simply use the link below to get access now. No charge. No card. All yours to trial for 14 days.

To your success~ James Paynter

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