Rand enjoys a strong finish, despite SARB & Eskom
29 Jan 2019 - by James Paynter
Well, the rand was back to its topsy-turvy self this last week, with a wide trading range keeping exporters, importers and traders on their toes for the full 5 days...
And it was a week of action, with many world leaders not even making it to Davos WEF due to crises back home...
...including some big names, such as Donald Trump and Theresa May.
However, Ramaphosa was there, seeking to calm investors and convince leaders of Eskom's sustainability.
While all this was going on, the rand wobbled its way back toward R14, before barrelling down back toward R13.50 again.
Let's get into the finer details - there's a lot to analyse!
These were the big talking points for the week:
Davos - the World Economic Forum of 2019 in the Swiss Alps was one of the major talking points of the week, as leaders from all over the globe came together
Brexit - the clock is really ticking toward disaster now, as another week goes by without clarity, and Theresa May still not budging on her plans...
SA Inflation - a welcome recovery thanks to reducing oil prices and other factors meant that SARB was back to where they wanted to be
Zimbabwe - the troubled neighbour continued to make headlines for all the wrong reasons
Eskom - what next for the collapsing electricity company? Ramaphosa insists he has a plan...
The rand opened around R13.85, after having lost ground in the latter half of the week.
With the market having held below the R14 mark for more than 2 weeks now, it would be a psychological blow to head back over that level.
However, the rand had a lot going for it - the US government shutdown continued to plague the dollar, with warnings that economic growth was being stumbled by it.
The dollar index has already taken a steep correction in the last few days, and looks like it has room to run...
One of the biggest economic events of the year, and yet its biggest drawcards were missing.
No Trump, no May, and no Macron headlined the list...
Ramaphosa however, was there and touched on a number of crucial points for SA. The key focus of his trip there was to convince everyone that SA has changed course - crucial if there were to be any investors coming forward toward his investment drive.
There were issues too, such as Eskom, which needed attention and a clear plan forward explained. The World Bank warned that Eskom is "simply too big to fail" - effectively saying, there is no option but to try and save the electricity giant...
...who currently doesn't even have funds to make interest payments, let alone invest in much-needed infrastructure.
And Ramaphosa did his best to do just that - trying to convince leaders of what the future was rather than the past, despite the many problems weighing on the country.
He announced that there would be measures taken to stabilise Eskom announced in a few weeks, and that he had "complete confidence" in Reserve Bank head, Kganyago.
This good news was combined with South Africa's inflation report - a massive improvement as it reduced a huge 0.7%, back down to the middle of SARB's target area, at 4.5%.
This was largely due to the reduction in oil and fuel prices - but there has been a recovery from oil, meaning this may not continue indefinitely. But for now, this is majorly good news!
The rand had a poor first half to the week though, moving close on R14/$, before reaching a topping out point of R13.98...
In other news:
Zimbabwe was in the news again for all the wrong reasons, as panic and fear gripped the country for the second week in a row, as President Mnangagwa returned from a fund-raising trip to Russia (what has he given to Putin in return?). With there having been such a positive change in the top brass of the government what feels like just the other day, it is disappointing to see the same old story playing out. This time, things have gotten violent, with protests, military and police activity and more - resulting in deaths and injuries of multiple civilians. It remains to be seen what global leaders do as a result of this, but the ANC took a confusing path of requesting that sanctions imposed on Zimbabwe be removed...
But Zimbabwe was not the only one in the news for the wrong reasons - Venezuela moved into its next stages of collapse. A huge uprising, with protests and looting taking place after the President was re-elected for a second term, starting January 10th. The election, which took place in 2018, has been widely disputed, and has now resulted in the opposition party leader declaring himself the interim President of Venezuela. The US announced that they recognised him as the President, and a furious current President Maduro says Venezuela is breaking relations with the US and gave American diplomats 72 hours to leave the country! What a shambles...Communism really works well, doesn't it?
Our favourite bugbear, Brexit, continued along its merry way this last week, as Theresa May presented her Plan A (Plan B, my mistake), which just so happened to look remarkably like her Plan A (or was it Plan B...I'm confused). Either way, both of them are very very similar, leading many to believe that when the end of January vote comes on the deal, it will most likely be shot down again. And so we go...
Risk currencies have been taking a slight knock as the IMF (International Monetary Fund) confirmed they expect global growth to average at 3.5% (in 2019) and 3.6% (in 2020), lower than the 2018 average of 3.7%. This, coupled with news that China’s economy grew by 6.6% in 2018 (the slowest pace in 28 years), has raised the eyebrows of global markets.
For the rand, the week ended off on a high note, as Thursday & Friday provided major cheer, as a more than 30c gain took place, bringing the USDZAR closer to R13.60/$ to end the week...However - this was countered by some very worrying news for investors and Saffers alike.
David Mabuza, Vice President of SA, reaffirmed that the ANC is intending to nationalise the Reserve Bank of SA. This is one of the trickiest subjects for Ramaphosa to navigate with investors, because it is essential to the integrity of the economy and country...
...and if that is the plan, there is trouble coming on the investor front...and the country!
The Week Ahead 28 Jan - 1 Feb 2019)
And before you know it, we are into the last week of January 2019...
And what a week we have before us, with the Brexit vote, US interest rate decisions and non-farm payrolls all set to provide some volatility in the market....apart from all the political and social dilemmas locally and globally.
Not a time to take your eye off the ball if you have currency exposures.
The rand has weakened already this week, and we will be watching some key levels to confirm the preferred and alternate Elliott wave market patterns.
One thing for sure, it is not going to be all one-way traffic.
For further detail go to: https://www.forexforecasts.co.za/ref.html?p=DO133&w=RR
James Paynter is Head Analyst at Dynamic Outcomes, a specialist forex solutions company that provides forecasts, tools and solutions to clients with rand foreign currency exposures, to reduce and manage their risk and optimize the timing of their transactions.