Welcome to another issue of our Weekly Rand Review!
The past week was another humdinger for the Rand as central bank actions both locally and internationally set the stage for some serious market movements.
We saw the Rand gain further ground on the previous week's gains to hit its strongest levels in 20 months against the greenback, buoyed by a rise in the gold price and combination of resilient domestic data and global economic shifts.
Let’s unpack the key moments and see how the USDZAR fared amid all the excitement
Key Moments (16 - 20 Sep 2024)
Some of the more pertinent headlines and events over the past week:
Interest Rate Cuts: Both SARB and the Fed cut interest rates, while BoE decided to trad water a bit longer
US Retail Sales Disappoint: Local Retail Sales saw an encouraging increase, beating expectations
Gold & US Stocks Hit New Highs: US stock markets continued to surprise, while gold continued to push higher
The Rand started the week with a strong showing, carrying where it left off on the Friday prior, as it opened near R17.74/$ but quickly gained momentum, pushing lower through the day to close near its low of R17.59.
This was going to be a big week for the markets with three interest rate decisions on the cards to keep investors and traders on their toes...
..as they also digested the news of another near assassination attempt on Donald Trump at his Florida golf course on the weekend - again raising many questions!
On Tuesday, the Rand continued to show resilience, as it first gave up some ground, hitting R17.67/$ before pushing back strongly in after hours trade to make a new low of R17.55 before closing around R17.58...
...the trigger for the day being the release of US Retail Sales data, which slumped to just 0.1% compared with the previous month's 1.1% gain.
Wednesday was marked by significant volatility as the markets awaited the Fed's interest rate decision, with a cut being expected, it just being a question of how much?
The Rand edged lower in SA trade as it absorbed encouraging news that inflation had edged below expectations, registering 4.4% year-on-year in August, but the discouraging news that Retail Sales had decreased by 0.2% in July.
And then it was the Fed's interest rate decision...
..which when it came was a 50 basis points drop - from 5.5% to 5.0%...
.. the first rate reduction since March 2020 - and one which seemed to take the market by surprise.
But it shouldn't have if you understand that the Fed merely follows the market, as can be seen by the chart below.
Historically, the Fed has followed the 3 Month Treasury Bill rate - and as it has risen or fallen, the Fed has followed suit...
... as you can see, the T-Bill rate had fallen to a touch above 5% - and so a 50 bps cut should have been expected.
Anyway, this news seemed to really trigger some violent volatility with the US dollar immediately pin-dropping, and the Rand followed in its tailwind, to hit a low of R17.42/$ before the greenback found some fight and recovered somewhat, leaving the Rand sitting around R17.50 in NY close.
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In other news:
With global markets in flux, it didn't stop persons pumping back into US stock markets, as the Dow Jones Industrial Index and, S&P 500 both hit new all time highs.
Of interest though, the Nasdaq and the Transportation Index remain well below their highs, showing some 'Dow Theory' divergence, which means, 'Watch out!'
And then Gold also shone, as it surged above 6200 during the week, suggesting some flight to safety as fears of a Dollar collapse continue.
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Thursday was another interest rate decision day for both Saffers and the Poms.
The Rand initially lose ground as the market hit R17.62/$ but quickly recovered and had the momentum to drive the market down to hit R17.39...
...its strongest levels in 19 months!
SARB came with an anticipated 25 bps cut to 8% (prime to 11.5%) and the Bank of England kept its rates at 5%, which was also expected after last months cut.
But even if expected, these decisions are market triggers, and the Rand jumped from its low back up to 17.55 before recovering to end the day around R17.45 to the Dollar.
And then it was Friday, with not much in the way of data releases...
...and the Rand seemed to lose some of its impetus, as it weakened throughout the morning to hit R17.60..
But the Rand show wasn't over yet!
The ZAR had kept its best for last as it strengthened thoughout the afternoon and into after hours trade to test below R17.35 to the Dollar.
So all in all, a very solid week for the Rand, as it took advantage of Dollar hitters to hits it best levels since January last year - not too shabby!
The Week Ahead (23 - 27 Sep 2024)
Looking ahead this week, there are some potential triggers, with local inflation and GDP Growth and Durable Goods Orders in the US.
Not as big a week as last week, but that doesn't mean things are expected to be any calmer!
Stay tuned, and feel free to share your thoughts or ask any questions!
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Weekly Wrap-Up & Risk Analysis
How did this past week perform in terms of volatility and the resultant risk analysis for your exposures?
The week more volatile than last week:
Average Daily Range: The average daily fluctuation for the USD/ZAR exchange rate last week was 18.2c or approximately 1.04%.
Weekly Range: Over the entire week, the total fluctuation from the highest point to the lowest point was 40c or 2.3%.
What does this mean for you?
For every R1 million exposure, the potential profit or loss could have been:
Daily fluctuation: Around R18,200 on any given day.
Weekly fluctuation: As much as R40,000 over the week.
These fluctuations highlight the importance of having a dynamic forex strategy for timing your hedging and conversions to both:
Mitigate potential losses and
Take advantage of favorable market movements.
Hence the importance of having a roadmap that can help you make the right decision
at the right time - at a fraction of the cost of your risk!
Thank you for being a subscriber to our Weekly Rand Reviews - we would welcome your comments, questions and feedback.
Until next week...
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This weekly newsletter is brought to you courtesy of Dynamic Outcomes, a Rand forecasting service focused on assisting exporters, importers and individuals in making more informed and educated decision around the timing of their foreign currency transaction – a critical factor in any risk management strategy. This is centred around providing an objective view of where the Rand is expected to move against the Dollar, Euro and Pound over the short, medium and long term.
BeztForex have arranged for our clients to try out the Dynamic Outcomes Rand forecasting service for a full 14 days at no cost and no obligations:
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Disclaimer: The content of this Weekly Rand Review has been prepared by and constitutes the opinion of Dynamic Outcomes, a division of Dynamic Forex Solutions LLC (DFS); it is solely for informational and educational purposes and is not to be taken as advice, or an offer or solicitation to buy or sell the securities or financial products mentioned in the content nor a recommendation to participate in any particular trading strategy. No past performances of any strategy or forecasts are a guarantee of future performance; trading in financial markets involves substantial risk, and you need to do your own due diligence in managing this risk. While every care has been taken in ensuring that the content gleaned from third parties is from reliable sources, no responsibility or liability will be accepted by BeztForex or DFS as to the accuracy of the information contained here, which may be subject to correction or amendment at any time after publication.
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