Ricochet News

USD ZAR forecast: Rand whipsaws back toward R19/$

By James Paynter - May 4, 2020
USD ZAR forecast: Rand whipsaws back toward R19/$

With the hopes of lockdown ending soon, the Rand enjoyed a better week, testing down from its R19 levels to almost break R18 to the Dollar...

...before losing everything all over again!

Volatility continued to be the plague of every business owner though as the wild swings of the Rand continued.

As of 24 April 2020, the Dollar/Rand had moved on average 1.6% PER DAY since 2017...

...and on average 2.0% PER DAY this year so far…astounding but true!

Never before has there been such a critical time to have an objective, emotion-free decision-making strategy, in order to manage your risk, be it for small business or corporates, personal trading or investments.

But let's get into the full review...

 

Key Moments (Apr 27 - 1 May 2020)

 

Here were the biggest headlines from the 5 days:

  • US Jobless claims - in just 6 weeks, there have been over 30 million jobless claims in the US, closing in on the worst unemployment level seen during the 1929-1933 Great Depression, with more still to come
  • S&P & Moody's downgrade further- sending SA's investment grade rating and banks further negative
  • SA Loans & GDP - in an attempt to dig the country out of a black hole, Mboweni and Ramaphosa sought funding from banks, but at the same time are facing huge GDP losses that not even stimulus can save
  • Global Interest Rates & GDPs- and so the economic results continued to flow, giving us a fresh view on the effects of the global economy from Covid-19

The Rand opened up on Monday (which was a holiday, Freedom day) and traded briefly above R19, but never again through the week, as we saw the tide seem to turn for the battered ZAR.

Over the next few days, we continued to see the Rand strengthening against the Dollar...

...economists scratched their heads, as this was following ratings agency Moody’s coming out with a statement foreseeing SA’s economy going into recession and GDP contracting by 6.5% in 2020.

...followed by Moody's also changing its outlook for the local banking system to negative

...followed by S&P trying their best to spoil the mood, downgrading SA’s investment grade rating further into junk-status (BB-)

As well as South Africa being officially delisted from the Bond Index on Thursday evening...

And yet nothing seemed to be able to stop the Rand, as it approached R18 by Thursday afternoon, with almost nothing seeming to be able to stop it:

 

 

(read on to see how our forecast from said differently...)

Over in the US, GDP had shocked with an enormous -4.8% loss in Q1, which is scary considering the lockdown only really started in March, not before that.

It was then followed up with more jobless claims, taking the total figure to all of 30 million claims in the last 6 weeks. This now means that around 18.6% of the labour market has claimed unemployment in just 6 weeks.

US Jobless Claims

 

 

Who would have thought, just a few months ago...?

Well, many did actually see it (although not the trigger of the collapse), because this is exposing the frailty of a credit-driven economy, and really a credit-driven world. A world which relies on everything going smoothly, otherwise when things bite, suddenly the pack of (credit) cards comes crumbling down.

 

In other news:

  • The stimulus bailout/package has been a major talking point in South Africa, as Ramaphosa unveiled a R500 billion support package to support the economy amid the COVID-19 pandemic. This was then amended by Finance Minister Tito Mboweni to a combined fiscal and monetary package for over R800 billion. At least R95bn of this is meant to be financed by the World Bank and IMF, and even with this, predictions are for a 6.4% contraction of GDP in 2020.

    SA is at risk of losing 7 million jobs, with 50% unemployment not being beyond the realms of possibility, as the Treasury outlined the worst case scenario for the next few years. It is going to be a really tough period, and another one which credit cannot just solve.
  • In better news, this has forced SAA Express to finally go into provisional liquidation - something which should have happened a long time ago, considering the years of wasted tax-payer funds.
  • On Friday, 1 May, we finally say saw some opening up of the lockdown as exercise was allowed between 6-9am, and different businesses went back to work, including SA wine exports getting the green light again. This allows some scope for the economy to try and slowly kickstart it back into life again.
  • In economic news, the US kept interest rates at zero, showing their reluctance to take rates negative despite the current situation. ECB has kept interest rates unchanged at 0% and the deposit facility at -0.5%.

Now back to the Rand...

On Wednesday, we had released an update to our subscribers as the Rand strengthened to warn them of the Rand heading lower from where it traded at R18.11 but it would shortly bottom out, and head higher to test R18.54 and above... (see below - click to enlarge the forecast)

 

 

As we said earlier, the Rand traded close to R18 on Thursday afternoon...

...and just like that, we were trading a touch under R18.90 on Friday afternoon!

In 24 hours there was a 90c turnaround!

Crazy...but there again is the power of the Elliott Wave - if we can just abstract our emotions to trust it.

The Rand ended South African trade around R18.80 to the Dollar, ending the week squarely on the back foot...

 

The Week Ahead (5-9 May 2020)

 

Once again, before we look into the week ahead, if you have not already, please take a look at the replay of our recent webinar:

"The Global Crisis Has Begun - Where Are We Heading?"

It is free to access by clicking the link above which will take you to the YouTube replay.

We found the information we presented essential to plan for the future...

...and so did hundreds of our clients.

If you find it of the same value, please share it with your colleagues, family and friends.

As we look into the week, we have another tranche of fundamental and economic releases and events that can provide potential triggers, with some of the main ones coming out of the US (Trade Balance, Jobless Claims, Unemployment Rate & Non-Farm Payrolls) and UK (BoE Asset Purchase Facility, Interest Rate Decision, Monetary Policy Summary, BoE Minutes).

So, in essence, expect a similar trend to the prior weeks...more figures to shock everyone. And more volatility to keep everyone on their toes.

But as for the Rand, we will continue to focus on what the patterns are telling us to give an objective view of direction...and we suggest you do the same.

 

To get a look at what charts we are looking at and using to give direction, use the link below to get access to the latest forecast. No charge. All yours for 14 days.

Click here to get 14 Day Trial on the house!

 

Looking forward to your feedback.

To your success~

James Paynter

 

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