Rand crumbles to R16.13/$…is more pain coming?

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

Another rollicking week has passed us by in a flash, as we saw the Rand’s generally placid trade of the last few months get completely destroyed by the volatility.

Just when it seemed like all was rosy a couple weeks back, the Rand has gone on an absolutely crazy run, exploding to levels not seen this year… and took us uncomfortably close to last year’s high of R16.36 before recovering somewhat on Friday! A real humdinger of a week, so let’s get into the full review!

Key Moments (25-29 Apr 2022)

So before we get into the week, we issued out our latest forecast on the USDZAR for the Short Term (next few days), giving our clients what to expect. With the Rand already trading at R15.61, the market was at an extreme and everyone was looking for guidance as to what was coming next.

Our Elliott Wave based forecasting system model showed that we should expect the market to track higher to test that R15.92-16.36 area after a minor correction…so it looked like the R16/$ mark was on the cards.

So we began to watch with interest when the week began!

And there was plenty of interesting headlines from the 5 days to give the market some fuel:

  • Mighty Dollar – the USD has had many threats of its demise and the end of its role as the reserve currency of the world, yet time and again it shows the strength it possesses in time of trouble and fear.
  • Economic War Escalates – Poland and Bulgaria are now cut off from Russia’s power supply as Putin ratcheted up his defiance against any potential expansion of NATO, throwing natural gas and oil prices for a loop…
  • Bejing Lockdown – China is back into lockdowns again, which threaten to further devastate supply chains which are already under huge pressure
  • Spooked Stocks – a combination of worries have sent stock markets packing, with NASDAQ heading for its worst month since 2008!

And so the week began, with the Rand opening around R15.55 odd, facing an uphill battle from the outset to overcome the Dollar.

The Dollar has been on nothing short of a hot streak over the last few weeks, and with the Rand now ‘re-coupling’ with it, we have seen some incredible swings in value.

The Dollar Index itself breached 103 this week, and came near to hitting 104!

And while that 104 level was not broken, the Dollar Index broke above the last 2 previous highs of the last 2 decades, hitting its strongest point since 2002…

…this at a time when persons are saying the Dollar is dead.

It is a most interesting turn of events, just as Russia is distancing themselves from US dollars and starting to try trade their oil in Rubles only.

Yet the uncertainty of the situation once again just brings people running back to the Dollar! The chart gives some context to the Dollar’s strength over the last 20 years…

These are levels we have not seen since the turn of the century Dot-Com bubble, combined with the 9/11 crisis of September, which following that saw the market just capitulate through 2002 and onwards until the 2008 housing bubble…

…those were some pretty volatile, and we are in some pretty volatile ones today!

The Rand, now returning to being re-coupled with the Dollar, did not take the USD’s moves higher very well…

We saw it just move steadily weaker through the week, breaking R16 on Thursday, eventually crashing into our target area from Friday’s forecast, touching as high as R16.13! The local unit was in need of some serious damage control, with the USD on track for its best month since 2015!

And then in other news:

  • The economic war has largely been everyone else vs Russia up until this point, but this week, things changed. Putin cut off supply of natural gas to Poland and Bulgaria. It was Russia weaponizing the resources that they have got, and probably is not going to be the last of what we hear of this kind of ‘warfare’. The result was oil prices shooting higher again, after they had only just subsided a little. By Friday they were making a small comeback, edging down toward $100 a barrel again, but the uncertainty was very real as every market sat on tenterhooks.
  • It did not help that China appeared to be going into yet another lockdown phase, as President Xi imposed very strict conditions on day-to-day life, which threatens to further devastate supply chains – the backbone of which lies in China for all manufacturing. The last few years have been absolute crisis management for so many businesses who rely on China, and right now, it doesn’t look like it is going to end anytime soon. There are more than 340 million people living under strict lockdown conditions, as Xi sticks to his guns that he will reach zero cases. Just as the rest of the world opens up, China is closing down yet again…
  • And if you thought the Rand was reacting badly this week, you obviously have not been watching the stock markets, as the Nasdaq headed for it’s worst week since 2008, Amazon stocks fell by 15%, and the S&P500 down by more than 7% in its worst month since the onset of the pandemic. The combination of crises, combined with the soaring inflation, and the unexpected -1.4% decrease in Q1 US GDP instead of the expected 1% gain was just too much for the nervy investors, and the result is one of the darkest weeks in stocks for quite some time…what will come next?

Getting back to the local unit, Friday finally saw some relief for the ZAR as it recovered back to sub R16 to the Dollar, and then yet further to break below R15.80 in late trade! Locals and importers will be hoping that this is a turning of the tables after a torrid few weeks…

The Week Ahead (2-6 May 2022)

And just like that, a third of the year is gone!

The Rand had such a great start to the first quarter, but the next month has been nothing short of torrid.

As now we look into the days ahead, there are some triggers in terms of economic events to keep an eye on:

  • US – Balance of Trade, Interest Rate Decision, Jobless Claims, Non Farm Payrolls, Unemployment Rate
  • EU & UK – BoE Interest Rate Decision

So, some potential large triggers from a fundamental evet point-of-view, but the markets have hardly needed those these last few weeks, with all the turmoil going on politically, economically and socially.

As for the Rand, based on our forecasting system, it looks like it could well remain under pressure, with some key levels to watch over the next few days. Expect another humdinger of a week to kickstart April.

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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