Turnaround time for the ZAR? – Rand back to R14/$

rand

Another week, another Rand turnaround… Such has been the stability of the local unit been over the last 3-4 weeks, we have seen it trapped in a mere 40c range.

This is unheard of for a market that has moved on average 23.5c every day, and 113.2c per month since January 2016!

So one thing is clear – don’t expect this lack of volatility to last too much longer.

But for now, the Rand is enjoying quite the run, moving back down toward testing below the R14.10 levels…

In this world of a Dollar driven market, it will be a waiting game for the USD’s next move as well as the ZAR’s, to see when we are actually going to get a clear breakout. For now, let us get into the full review!

Key Moments (3-7 May 2021)

Before we get into the week, here were the biggest headlines:

  • Local Politics – the big news of the week was Ace Magashule, Ramaphosa’s biggest opposition and headache was in hot water…
  • US Recovery Continues – jobless claims, payrolls and more have continued to trend the right direction…is the U-shaped recovery a reality?
  • Interest Rates – Fed’s Yellen issued a warning as massive stimulus spending threatened to overheat the economy – the balancing act continues!
  • Ethereum Explosion – the 2nd-in-command Crypto has blown previous records out of the water, soaring to all-time highs…what next for cryptocurrency?

So the local unit opened around R14.45 to the Dollar, having weakened into the close of the previous week.

It was due to be a defining week, with so much hanging on whether we would see the trend continue or come to an abrupt end.

And speaking of abrupt ends, it seems one is on the horizon for Secretary General Ace Magashule as the ANC suspended him!

This was the big political news of the week, with Ace having been the thorn in Ramaphosa’s flesh since day 1…

…however, it was not going out without a fight as he promptly attempted to suspend Ramaphosa himself in retaliation!

Lack of constitutional powers meant that this was an impossibility, but it shows he will not go down without a fight.

As the rest of this ‘soap opera’ plays out, it will be certainly shape the political landscape in SA for the years ahead, as Ace has been a communist troublemaker since day 1. And somehow, the Rand loved this news and began it’s trend stronger, moving from weakest levels in a month of R14.54 to be testing R14.20 and below by Thursday!

All the while, the US economy seems to be continuing to pick up momentum, as the blocks started to all fall into place:

  • Jobless claims sunk below 500,000 for the first time since the crash of last year, with a drop of nearly 100,000 since the week before. This bettered expectations and really began to show that things were getting back to normal, as more states opened up and relaxed restrictions, allowing the workforce to get back to business again.
  • Private Payrolls have also continued to grow significantly, and according to ADP, there was 742,000 in payroll growth just in April. This was well above the 565,000 of March, although a little under Dow Jones estimates of 800,000. Lesiure and hospitality are leading the way, but also manufacturing and construction making big gains.

Yet, these gains don’t seem to be translating into any Dollar strength, as the USD Index has continued to languish around the 90 point mark, with no sign of breaking free of its sluggish trend.

Fed’s Yellen too warned that interest rates may have to raise somewhat to keep the economy from overheating. Such is the stimulus spending right now, there is threat of the recovery being overcooked! Who would have thought…

And then in other news:

  • Cryptocurrencies continue to make headlines but none more so that Ethereum and Dogecoin, which have both exploded in value this year. Dogecoin is some 12,000% up from where it began the year – a crazy run that is just unheard of in any other form of asset. Ethereum too broke to more than USD 3,500, as persons really began to take this market seriously as a store of value.

    However, we would warn our readers that cryptocurrencies are no different to any other market – the market moves from fear and despair, through to euphoria, greed and complacency, and then the cycle repeats. Right now, we are reaching a euphoric stage where it seems no market can go down – be it stocks, asset prices, cryptocurrencies, property…this is a red flag. Tread carefully.
  • On Friday, after all the good economic news of earlier in the week, the economic recovery got a bit of a reality check. Non-farm Payrolls came in much lower than anticipated, as the expected boom became a bust. Just 266,000 jobs were added instead of the expected 1 million, and unemployment rose to 6.1% instead of the expected fall to 5.8%. It is clear that no one is out of the woods just yet…

As for the Rand…

Well, after that bust of the Non-Farm Payrolls, the ZAR exploded lower to break R14.10!

It was once again a case of the Dollar’s loss was the Rand’s gain.

The USD has been on a hiding to nothing for the last year…

…when a trend reaches an extreme, you can expect a reversal soon.

How far away can we be from that?

These are the questions we are left with heading into the new week… And that was the wrap!

The Week Ahead (10-14 May 2021)

As we look to the week ahead, we have a quieter schedule ahead of us in terms of events, but will look to see what triggers the next Rand move…

Here are a few to watch out for:

  • USA – Jobless Claims, Retail Sales
  • UK & EU – GDP, Bank of England speeches

So not too much on the economic event front, but there is always plenty happening with all the social, political and financial upheavals going on.

Based on our analysis, this ZAR strength has a little more momentum to go, but could well be coming to an end shortly, and we will be watching some key levels (as depicted in our forecasts) to confirm direction for the weeks – and possibly months – ahead. Watch this space…

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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