Rand breaks R12/$ barrier - what next?

WITH the rand momentum seemingly unstoppable, what is coming next as the incredible run continues?

The rand is booming. There is no doubt about it.

As we pushed through the R12/$-mark (with aplomb) this week, and had the momentum to go even further (R11.80) - exporters were starting to seriously panic (almost as much as Capetonians with Day Zero of their water crisis fast approaching).

How things have changed - the rand weakening from late 2012 through until 2016 had made it an exporters paradise: dollar income, and rand expenses... all you needed to do was time your transactions, and the money was there for the taking.

And, of course, for importers the opposite was true - things just got tighter and tighter. Until many were ready to give up. And some did.

Then, the tide changed. Since the start of 2016, it has been a different ballgame. Remember 'NeneGate'?

Of course you do, no one has ever forgotten it! That was the absolute pinnacle of negative sentiment in South Africa. It could not have got ten worse - and in fact, it didn't.

You might remember the Great Rand Debate webinar I did with Scott Picken in early February 2016 when the rand was around R15.75 and while everyone was fearing a collapse, we were forecasting just the opposite - a move well below R14.00.

Not many believed us back then - and I don't blame them, because it seemed impossible with all the negativity.

But that was exactly what confirmed to us that the rand had reached an extreme and that the tide had turned.

And since January 2016, we have been steadily heading stronger and stronger - seemingly against all odds.

Last week the local unit dipped below 12/$ to hit price levels last seen in May 2015. Just a few months ago, these levels would have seemed impossible!

Let's take a look at the key moments from this last week - it was a very important one.

Our outlook for the week was still one of rand strength - the positive momentum was not due to stop just yet, despite many saying that it cannot carry on any longer. A target area of 11.96-11.50 in the next few days...it was going to be another interesting week.

Key moments from the week:
  • That break below R12/$ was quite a moment. With this being an almost 3-year best level for the rand, it was not a level anyone (except those informed by a system like our Elliott Wave based one) were expecting in January 2016, or even November 2017.
  • Investor sentiment - it is reported that after investors dumped R47bn of South African stocks in 2017, foreigners are buying JSE-listed stocks at the fastest pace on record in 2018.
  • US dollar weakness - the US dollar is said to be at a 3-year low, according to the US Treasury Secretary, was speaking at the World Ecomic Forum event in Davos.
  • Ramaphosa & ANC plans - this was a major talking point, apparently, as the Top 6 were discussing the exit of President Jacob Zuma and the appointment of a new Eskom Board.
  • US government shutdown - it only lasted a few days, but it was particularly disrupting for the USA, and it has surely contributed to the dollar weakness.

Since positive sentiment turned to negative in 2011-2012, it had been all downhill (upwards) for the ZAR, and by early 2016 it had turned into a complete wreck. Yet, here we are today, having hit levels under R12/$ again! The fact is, we are still unwinding from that extreme point in January 2016. And our forecasts prove it, as we were expecting a move to sub R12 levels, since early 2016. The Elliott Wave Principle has an uncanny ability to track markets, and it has proved itself time and time again. And so it did on this week too, as our initial outlook was validated after it moved below R11.96/$ on Wednesday. And with that, we suddenly have some positive sentiment, with the Ramaphosa effect, signs of action against state capture, and hopes of an early Zuma exit. This positivity was evident at the Davos World Economic Forum, where Ramaphosa said SA was 'on a roll', and was extremely upbeat on how things went - watch a video of him speaking over here.

His words were: "The reception that we got from potential investors and current investors was very positive. Everybody is feeling very positive about our country now."And why would there not be some positivity, after breaking below the R12 barrier for the first time since 2015 - it was all in the news, with businesses and persons really starting to sit up and take a look at what was happening.Based on this, one would expect the rand to gain even more over the next few weeks, but that is just when you will be caught out. Unless you are following an objective view like our Elliott Wave based one. Our next forecast gave the rand further chance of falling into the R11.82-11.29 area - before bottoming out and heading higher again. Strong support was around the 11.60-55 area.

And that was just what we saw, as the rand headed right into the target area in the next couple of days, as it touched R11.79! It has not all been about the rand though - the dollar has has been on the back foot across the board as it hit a 3-year low. Perhaps President Donald Trump's comments last year were having some effect, when he said the dollar was too strong. Many people were eagerly anticipating more news on a Zuma ouster, and though Ramaphosa said it was "an issue to be addressed", that he is President of the ANC and Zuma of the country, it is clear that there are plans in place, and we could see things coming clearer soon. To end of the week, here is a chart of the biggest winners and losers from this week of JSE trading:

* James Paynter is a financial market analyst and  founder of Dynamic Outcomes.

* SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.
ZAR/USD
16.96
(+0.34)
ZAR/GBP
21.17
(+0.36)
ZAR/EUR
19.08
(+0.51)
ZAR/AUD
11.76
(+0.18)
ZAR/JPY
0.16
(+0.52)
Gold
1772.50
(+0.38)
Silver
17.92
(-0.22)
Platinum
809.00
(-1.22)
Brent Crude
42.09
(+1.84)
Palladium
1899.00
(+0.13)
All Share
54617.19
(+1.54)
Top 40
50309.77
(+1.49)
Financial 15
10214.89
(+2.12)
Industrial 25
76156.33
(+1.23)
Resource 10
50768.18
(+1.58)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
Results
I'm not really directly affected
18% - 1545 votes
I am taking a hit, but should be able to recover in the next year
23% - 2008 votes
My finances have been devastated
34% - 3014 votes
It's still too early to know what the full effect will be
25% - 2191 votes
Vote