Ricochet News

Rand roars back against the Dollar

By James Paynter - Sep 9, 2019
Rand roars back against the Dollar

 

Mthatha - Turnaround time for the Rand could not have come a moment too soon, as the market finally broke below the R15/$ mark to give some relief to consumers and importers...

We called it a few weeks back, warning of the classic sign that a market is due for reversal - when there is despair and fear, then you know it is time for a trend to turn...

...or when there is greed and overconfidence, then an uptrend is about to turn.

Human sentiment is an amazing thing...

...and it repeats itself over and over again!

It was a week of spotlight on the global stage, but important local events too.

All in all, the Rand weathered the storm, and finally retraced from the heavy losses over the last few months.

Can it sustain its run into this next week?

We will cover that in a bit, but first, the review of all that happened...

 

Key Moments (2-6 Sept 2019)

 

First things first, here is an insight into what our subscribers received on Friday the 30th (before the week began), giving a forecasted outlook for the days ahead. It showed the USDZAR at R15.1717, with the expected trend to be that we break lower to R14.85-14.64 in the coming days, provided R15.34 was not broken above. (click to enlarge our forecast below)

 

 

And so our subscribers went into the week with some clues as to what the days ahead would bring...

And boy, didn't we need that, with a tumultuous week of events creating more noise than ever. Here are some of the biggest headlines:

  • GDP revival - out of nowhere, SA's GDP was flying high again to avoid a technical recession a huge turnaround
  • Hong Kong - after 13 straight weeks of protests, there was finally some backing off from the government as we saw some of the protestors demands answered
  • Trade War updates - and surprisingly, some say that the Trade War had more to do with Hong Kong than we realize, as we saw things turning to the positive again between the US and China
  • Brexit chaos - as for Britain and its exit...wow. It was an incredible week, as the tables kept on turning on Boris Johnson

So, first things first...

The Rand opened around R15.22 to begin the week, and actually gained ground toward the South African market open despite the latest Trade War news which had come over the weekend - with President Trump adding more tariffs.

It was certainly one of the more interesting weeks in the Trade War as we saw a couple of key elements playing out between the US Tariffs, China's economy and the Hong Kong situation.

President Xi is not normally one to compromise, but has been forced into a corner by the situation in Hong Kong to finally allow the Hong Kong extradition bill to be taken off the table.

This means that one of the demands of the millions of protesters has now been met, and while this is not a complete solution, it was their biggest demand.

This then combined with the latest news on China's economic growth made for some very interesting reading, as predictions are seen heading for sub 6% in 2019, thanks mainly to the Trade War...

...this was not helped by President Trump lumping further tariffs onto China of another 15% on $110bn worth of goods.

And so the perfect storm continued for China...and the net result is that the US and China have agreed to create favourable conditions ahead of their trade talks in October (with threats to increase tariffs still in place of course).

The feeling that comes out of the week is that President Xi has had to lessen his demands through the difficulties which China is now facing...

...perhaps a real resolution on the horizon?

President Xi's tight position was confirmed on Friday by China cutting its cash reserve ratio from 13.5% by 0.5% to 13.0%, and being forced to inject $126bn into its slowing economy...interesting times!

So, all in all, a positive week when it came to Trade War news, which was Rand-positive for sure...

...which brings us to some of the other Rand-Positive news: SA's GDP

Seemingly out of nowhere, SA's GDP sprung to life on Tuesday with a massive turnaround for Q2 of positive 3.1% growth! This was mainly in the mining sector, which has been a thorn in the flesh for a long time - so a massive and important turnaround for the country's growth.

Following this news, SARB governor's view was a confident one, with him being hopeful of an economic turnaround following the excellent GDP results.

Interestingly enough, the Rand's reaction to this was fairly muted - proving again that you cannot rely on news events to trigger massive moves.

 

 

Raging on amongst all of this news was Brexit, which had almost too much happening to keep track of. In short however (to the best of our understanding):

  • Boris Johnson tried to ensure Britain leaves the EU at the end of October, deal or no deal. This motion was blocked, and by the end of the day, British MPs had taken control of parliament to push for a definite solution to a no-deal Brexit.
  • This was business-positive according to the general public - but that is debatable depending which side of the fence you stand.
  • Boris Johnson was very unimpressed with this, and he suggested that if the Labour party doesn't want Brexit, then he will have an election on October 15, before the Brexit deadline...
  • ...this motion was also rejected and voted down. Leaving everything basically just as uncertain as it began.
  • Another election would effectively be a Second Referendum on Brexit, giving the final yay or nay from the now (hopefully) more informed public.

As for the Pound in amongst all of this, it had a jittery week against the Rand, but made a good recovery vs the USD:

 

 

As for other news headlines, there was plenty in the economic figures:

  • SA Current Account deficit worsened to 4% instead of the expected 3%, countering against the positive GDP news...
  • Globally, the US ISM manufacturing index dropped to 49.1 points. This is first time since 2016 that the index has dropped below 50 points, which is the tipping point between contraction and expansion.
  • US Non farm payroll added 130k jobs vs the 165k expected. Hourly earnings rose 3.2% while unemployment held steady at 3.7%.

As for the Rand, we saw one of the best week's in recent months, with the local currency gaining all of 50c during the course of the 5 days, to turn the tide on the resilient Dollar...

...this has been a long time coming, and was exactly as per our forecast from the previous Friday, as we saw the market track down into the low R14.70s, before closing the week around R14.80.

And that was the wrap!

 

The Week Ahead (9-13 Sept 2019)

 

Well, after an interesting week, there are plenty of prospects ahead of us in the next 5 days:

  • Another Brexit vote sometime on Monday
  • ECB Interest & Deposit Rate Decisions
  • US Retail Sales

And then we will wait to hear of any further updates on the Trade War and the yet to be concluded Hong Kong

So expect a bumpy ride, folks!

Big question: How is this likely to impact the Rand?

And again, our simple answer is, we do not try and decipher the news or fundamentals to give us direction. We simply let the market itself tell us what is happening, by analyzing the patterns of sentiment .

Applying the Elliott Wave Principle (the study of human behaviour in financial markets) to the market provides us with the best guess as to where the market is likely to be headed - much better than anything else we know.

So, as you saw in the review above, a forecast based on an objective analysis gives us something valuable and actionable. As opposed to gut feel, which leaves us indecisive.

To get a look at what we are speaking about, use the link below to get access to our forecasts for the next 14 days.

No card needed. Gratis!

Click here now to start your free trial

Look forward to sharing my outlook with you.

To your success~

James Paynter

 

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