Rand Rally continues to astound economists

Rand roars stronger on global news - is R14/$ next?

The Rand continues to blow past expectations, moving ever stronger against the Dollar. The turnaround neared R6 stronger from where we were in April last year, when there was that blowout to above R19/$.

While the Rand has benefitted from a commodity price boom, such strengthening can hardly be expected given an economy in disarray, spiralling debt and unemployment and more?

Such is the irrationality of markets.

Beware, this is a pattern that repeats over and over… and the result is always the same.

When a market is nearing an extreme, and you don’t want to let your emotions run away with you. Let’s start with a full review of this last week…

Key Moments (24-28 May 2021)

Before we get into the week, here were some of the biggest headlines from the 5 days:

  • SA Unemployment – the uncomfortable truth of just how bad South Africa’s unemployment situation is will always be hidden from official figures, but this week was once again D-Day as the latest numbers hit.
  • US Payrolls – the US recovery is a major talking point yet, and there is no bigger trigger and indicator than the US payrolls, due on the 1st Friday of each month…
  • Oil & Rand – a benefit of the strengthening Rand has been to offset the explosion of oil prices, but Saffers haven’t seen the fuel price reduction they had hoped for?
  • Manufacturing Data – another key indicator of economic recovery was starting to make moves, as manufacturing figures started to push higher

So, to start the week we had the Rand trading around R13.77, already at record levels for more than 2 years.

The Rand was certainly outperformed all expectations in the last few months – and disbelief was starting to set in that it had any more gas left in the tank.

The fact is that the odds were actually stacked against the local unit, and yet it was turning the tables.

The big event for the week was unemployment numbers – which never means good news…

And as expected, they came in poorly with the rate increasing to 32.6%, a record level of unemployment since 2008 – and these are just the official figures, with more on the ground views being that the country is well over 50% in reality.

But post-pandemic, this is a common problem…

…with the UN now estimating more than 100 million pushed into poverty as a result of the pandemic – really because of government lockdowns.

This shows the madness of shutting down economies…it is totally unjustified (does not work), and has done untold damage!

And yet, on we go with governments threatening of shutting down again, including SA’s Ramaphosa…

And then you have Eskom announcing stage 2 load shedding.

The problems abound.

Yet by mid-way through the week, the Rand was still pushing onwards, testing R13.50/$, with the market moving further and further to record levels not seen for well over 2 years.

One thing that was running in SA’s favour was commodity prices: As world economies re-emerge from the pandemic, so has their demand for commodities, of which SA is a major exporter. The current demand has pushed prices higher.

And too, a stronger Rand should mean cheaper fuel – something that South Africans have been desperate for. But this hasn’t been so simple, as Oil’s push ever higher to now testing around $70/barrel meant that most of the gains of the local unit have been negated. So now it is a case of who is going to break first – Rand or Oil that has a correction?

And then in other news:

  • A big indicator of whether markets are starting to hum is manufacturing numbers. Looking abroad, Manufacturing PMI data beat forecasts for May in both the Eurozone (peaking at 63.1 – highest since 1997), and the ISM’s data in the US (61.2), indicating a strong rebound for these powerhouse economies for Q2. Can this trend be kept up?
  • Big news for local property owners as the ANC has hit snags with their Communistic plans of expropriation without compensation, as they have not managed to garner the support to put the laws in place that they would like. Their ideas require other parties to be onboard, and you have EFF saying that their ideas are not radical enough, while the DA is saying they are too radical, which they are. A lawmakers’ panel is currently considering how best to alter Section 25 of the constitution, which deals with property rights. It was supposed to conclude its work last month, but it requested a 30-day extension after its members failed to reach consensus.
  • And then there was SAA, nearly ready to fly again. Pravin Gordhan was very positive as always, saying that SAA was “born again” and likely would be ready to take to the skies by August. His view was that the government funded airline was completely revamped and there will be no more bailouts…by now, Saffers know to wait and see, as we have heard this all too often before.

And then all of a sudden, it was Friday.

And Friday meant it was time for the jobs report from the US – one of the major triggers… expected numbers were for 671,000 new jobs in May, but no such numbers were achieved – with ‘only’ 559,000 being created.

While these are enormous numbers, and they brought unemployment down to 5.8%, economists remain wary to see whether falling short of expectations is to be anticipated because of how difficult it is to predict an economic recovery of this nature – or if the numbers must just be taken on face value as fast hiring taking place.

Regardless, the markets moved…and how!

Thursday had seen the Rand up testing closer to R13.70… …but that ended VERY quickly, as the USD went into freefall on this news:

The Rand was now edging toward levels not seen since 2018, trading around R13.45 at the SA close!

After hours the Rand kept strengthening, continuing the amazing run… What a past 18 months it has been – we will just leave you with this picture (click to enlarge):

The Week Ahead (7-11 June 2021)

As we roll onwards towards the halfway mark for the year, there are some events for us to watch in the second week of June:

  • SA – GDP, Current Account
  • US – Trade Balance, Jobless Claims
  • EU & UK – GDP, ECB Deposit & Interest Rate, Monetary Policy Statement

So a fair number of triggers, but plenty others abound with tensions globally whether social, political, financial or economic. What does this mean for the Rand?

The local unit had another incredible week last week, but we do not expect this one-way traffic to last much longer, based on our Elliott Wave based forecasting system. We will be looking closely at what the patterns are telling us over the next week to give us some hints the days and weeks – and possibly months – ahead.

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.

Click here to access to our forecast from Friday on the house!

If you have any questions or feedback, please let me know.

To your success~ James Paynter

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