USDZAR: Rand roars back as US stimulus arrives… what next?

JP Morgan and govt announce R342 million funding for businesses

Well, well… who would have said? The Rand never ceases to amaze, as it once again turned the tables on the Dollar. Crazy…but that is how it goes.

Yet every time this happens, there is often an element of surprise in the air.

And that is because we tend to extrapolate the past into the future – or tend to think in terms of fundamentals, when that is not what dictates market moves. But let’s take a look at some of those fundamentals today, as some major developments this week are going to dictate economies for years to come…

Key Moments (8-12 March 2021)

Over the 5 days, there were some big headlines…here is just a few of them:

  • US Stimulus – the major $1.9 trillion bill passed, and the markets reacted violently…it is little wonder, with this being the most momentous package in history
  • Rand Rally – emerging markets, including the Rand, took off with the wind in their sails following this news – but can it last?
  • Reopening begins – with the US having been one of those hardest hit by the pandemic, a reopening is a huge moment, and some states have started to go back to normal
  • Oil continues higher – petrol prices have continued to soar worldwide as Brent Crude oil has now topped $70!

So, first things first.

The US Stimulus Bill. First off: it is an absolute monster.

I don’t think the human mind can take in the magnitude of what $1.9 trillion really means – but is ENORMOUS.

But what does it mean? What does it mean for the Dollar? What does it mean for the Rand? What does it mean for the whole world?

Well, let’s look at some of the facts of the package. We already know it was a partisan, Democrat-backed bill which included plenty of their own agenda, using it as tied to stimulus money to ensure it passed.

Everyone is taken up with what effect the package is going to have…but what they do not realize is that they are looking at what effect it will have in the SHORT term. The real question: what will it do in the long term?

Let me just open your eyes a little with some of the REAL effects it is producing:Approx 20% of USD in circulation today has been printed in the last 12 months

This means:

More Dollars have been printed in 12 months than from Jan 1980 to Mar 2003

Absolutely astounding… And then what does that mean for Debt to GDP ratio?

It has ballooned upwards of 25% just in the space of the last year.

THESE are the effects of stimulus…and it should scare everyone. And it is happening everywhere, as you see the size of packages different countries have put out:

The US Dollar is faster and faster becoming a currency built on quicksand, and that is a serious risk to so many who have relied on the Dollar’s strength for years. Yes, I realize that still relative to other currencies, the Dollar is not weak. But do you see the potential for the implosion? It is increasing every day. Ignore it at your peril.

Where does this money ultimately come from?

The taxpayer – at around $6000 per US citizen!

So in terms of the package itself, of this amount, $1400 is being given back, with the rest being spent on all sorts of programs and bailouts, many completely unrelated to the virus! And all needing to be paid for by the taxpayer in the end.

Simply put, this is government expenditure gone crazy! To get back to those markets, the Dollar started the week off with strength, but that did not last long, as the rest of the week saw it stumble – and emerging markets soar!

To give a brief rundown as of Thursday evening:

  • USDZAR – Rand had gained 70c
  • EURZAR – Rand had gained 70c
  • GBPZAR – Rand had gained 75c
  • DXY – Dollar Index had lost 1 whole point

And many more such as the Turkish Lira, Mexican Peso and more made big gains on the Dollar.

While on the flip side, stocks, Bitcoin and more just soared higher… …amazing times we live in!

And then in other news…

  • US Reopening is really beginning to take shape, and this week was a massive one in the process of getting back to normal. Texas reopened and removed restrictions, mask mandates, capacity constraints for businesses, restaurants etc. Governors in Texas, Maryland, Mississippi, Connecticut, Arizona, West Virginia and Wyoming have announced similar plans in recent days. About time!
  • Oil prices have continued to explode higher, now hitting more than $70 a barrel this last week. Brent Crude has been on an absolute run since last year’s capitulation, and even since November’s correction, it is now sitting around 100% higher than where it was at $35. Demand? Or just speculation?
  • SA’s GDP figures came in this last week, and data showed SA’s economy grew by an impressive 6.35% in Q4 of 2020, better than the anticipated 5.6%. However, the South African economy did decline by 7% in 2020, which again is slightly better than initially expected (but still not great!). The key will be the days ahead – can the first two quarters of 2021 show significant improvement and recovery as lockdown restrictions reduce?
  • And on Thursday in the US, as Biden signed the American Rescue Plan (and made his first primetime speech since being in office), the Dollar crumbled further, while stock markets shot higher, with the S&P 500 jumping more than 1% to record highs, and the Nasdaq rallying 2.5% higher. The market seems to believe that stimulus = higher stocks… but we will see how long that lasts!

As for the Rand, on Thursday we saw it break even lower to hit R14.80, now 70c from where it began the week. Friday brought a little relief for the Dollar as the Dow Jones took its turn to make record highs, which left the Rand back up a little to end the week at around R14.95/$.

The Week Ahead (15-19 March 2021)

And as we roll into the next week and into the later half of March, we have several global events of significance in the next few days to keep our eyes on:

  • USA – Retail Sales, FOMC Economic Projections & Monetary Statement, Interest Rate decision, Jobless Claims
  • UK & EU – Interest rate Decision, Monetary Policy, BOE Minutes,

The Rand has had a good run the past week – can it continue its gains or are we looking for more weakness to set in? Based on our current pattern analysis, we have two scenarios that could be playing out in the short term, and will be watching key levels over the next few days to confirm which one is playing out.

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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