This end of year season for the Rand is turning out to be an absolute humdinger. Holiday season is here, supply chains are chaos, inflation is taking hold, as the manufacturing landscape in China is changing daily, and economists are not sure where to look next. Or central banks for that matter!
For the first time all year, this promoted SARB into action on interest rates. And the Rand’s manic run continued on the back of this.
The local unit crashed to it’s worst levels against the US dollar in 12 months, and investors were more jittery than ever. There is a lot to unpack – let’s get into the full review…
Key Moments (15-19 November 2021)
Before we get into the week’s happenings, here was our forecast issued out to our subscribers on Friday 12th of November, giving the outlook for the days ahead. This gave our subscribers confidence, peace of mind and clarity as to what to expect for the days ahead, and the ability to make informed decisions.
The outlook wasn’t pretty for the local unit. Sitting at R15.35, our expectation was for the target area to be R15.55-15.88 over the coming days.
So we waited for the triggers to move the market weaker per the forecast…
And there were plenty of talking points – these were the biggest from the 5 days:
- SA Interest Rates – SARB has eventually been stung into action, changing interest rates for the first time all year…
- Great Resignation – the US is undergoing one of the craziest and most volatile economic periods of all time, the latest being Americans resigning from their jobs at a record rate…
- Load Shedding – the thorn in the flesh of SA’s economy continues, who is responsible for all of Eskom’s mishaps?
To get back to the local unit, we saw it open at R15.30 odd, and all eyes were expectant as to what was to come next…
The constant ebb and flow of positive and negative data is threatening to give investors whiplash – and who can blame anyone for taking the approach of steering clear of higher risk markets like the ZAR.
And this meant so many were on tenterhooks as to what to expect next!
The big event of the week was SARB’s call on interest rates, as this would be one of their last meetings of another volatile year in which they have kept rates on hold throughout.
But before we even got there, the local unit was on the move, breaking upwards of R15.55 on Tuesday…
…and this without any clear triggers.
A reminder, that news or fundamentals or economic release are not always needed for the market to move. Sometimes sentiment just manifests itself without any major trigger.
What is clear, is that most are Rand-negative right now as the ZAR just keeps pushing weaker.
What was in the news (although nothing new) – was Eskom’s continued chaos, as more load shedding was announced. Deeper investigations are going into the possibility of sabotage, as one crazy ‘mishap’ after the next is happening so often, it seems hardly possible to be chance.
Now it was a key electricity tower collapsing – and then shortly after an, extension cord dropped on a transformer which took out 3 power units.
What next…?
And getting back to the Rand – just like that, our forecast from Friday had been validated already… But then our next update followed on Wednesday evening with the USDZAR at R15.51, reconfirming our outlook that anticipated another move higher into the R15.55-15.88 area again over the coming days.
And then it was on to Thursday, SARB’s big day…
And the news hit: interest rates were being hiked for the first time in 3 years to 3.75% – a bump of 0.25%.
While this is not a massive change in rate, it is a big change of policy, and is a sign of the winds of change blowing through the Reserve Bank. It was not a unanimous decision, but 3 versus 2 meant that the increase went ahead.
Other announcements were:
- Headline inflation has been revised higher from 4.4% to 4.5% for 2021.
- The forecast for core inflation is unchanged at 3% for 2021.
- The bank revised the growth outlook from 5.3% to 5.2% for 2021.
- Third-quarter growth is expected to be -2.5%, compared to -1.2% previously.
- GDP for the fourth quarter is expected to be 2.6%, compared to 1.6% previously.
Initially the Rand held it’s own following the news…but then that quickly changed!
Over in the US, they were facing their own issues as the next stage of the craziness of the ‘pandemic’. The latest segment of this soap opera: The Great Resignation. Americans are resigning from their jobs at a record rate, with businesses battling to find people to employ.
The economy is now stalling from another angle, just as we head
into holiday season. Some feel it may not last for long, but right now it is
nothing short of insane – with 4.4 million Americans leaving
their jobs just in September! From last year’s job crisis of so many
businesses shut down and unable to operate, this kind of change in the labour
market is just staggering.
The big question, is how much of this can be attributed to a revolt against
Biden’s unconstitutional mandate? If so, this is likely to increase as the 4
Jan 2022 deadline approaches, with many preferring to walk out rather than be
subjected to this…
But getting back to the Rand, we saw the market move on Friday to R15.78, further confirming our Wednesday Forecast.
Eventually we saw the market settle closer to R15.70, and that was a wrap for the week…
What a few days it had been, as our Elliott Wave based forecasting system had mapped the whole week out! What do the next 5 days hold…?
The Week Ahead (22-26 November 2021)
With just a few weeks left in this year, investors are waiting with baited breath to see what comes next.
It has been nothing short of a crazy few weeks, and with the Rand on the ropes, everyone is looking to see how the local unit closes the year out.
In terms of events in the week ahead, there just a handful to watch in the US, and of course Biden’s latest bill taking center stage:
- US – Jobless Claims, Durable Goods Orders, Trade Balance and FOMC Minutes
Once again, we will be watching the markets closely, especially some key levels to confirm our most probable outlook for the days and weeks going into yearend. Until next week!
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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.
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To your success~ James Paynter