Rand Strength Tiring Into Year-End

What we know

 

PHEW! It’s been a long year and we’re all rather tired. Add to that the fact that my editor is off getting married this weekend (congrats, David!) and I trust you’ll excuse the somewhat abbreviated final mailer for 2018. We’re nearing the end of a fairly tumultuous year for the Rand, and markets in general, and it’s looking as though we may be ending 2018 on the back-foot. Despite our belief that we should be trading in the 13.60 – 14.00 region, the momentum seen during the rally of the past two months has dissipated.

We attribute the most recent sell-off to three factors, which bear repeating:

– Concerns around Eskom’s bail-out, load-shedding and what impact this may have on the ratings agencies’ view of SA in 2019;

– Uncertainty caused by the seemingly endless tumult that is Brexit;

– Broad-based global risk aversion, the main benefactor of which is the USD (retesting 18-month highs this afternoon)

All of the above have unfortunately seen the Rand touch 1-month lows this week, erasing almost all of the 7.5% rally we’ve enjoyed since mid-November. It seems as though the factors above may very well continue to be the main driving forces into the start of the New Year, during which attention will also turn towards the upcoming local elections.

What we think

 

Last week we wrote that “we will maintain a neutral view as long as we remain in a 13.60 – 14.00 trading range, but given the jitters seen this week, we believe that we are now more susceptible to possible weakness. In our mind this (Brexit vote) certainly does favour a cautious approach, at the very least until the result of the vote is known. As such, our range for the week ahead stays at 13.60 – 14.00, with a retest of 14.20 likely, should we break to the upside of this range.”

While not convinced that the recent sell-off will continue, we are somewhat disappointed that the there was only limited resistance to the Rand’s weakness, as we moved fairly easily through the 14, 14.10 and 14.20 levels. The recovery seen on Tuesday and Wednesday was short-lived, as 14.10 provided support, and at the time of writing we are only 7c off the worst levels of 14.48.

As things stand (and notwithstanding our very real concerns regarding Eskom) we believe this weakness is overdone and anticipate a Rand recovery from here. The most significant resistance level – in our opinion – would be 14.10, as was the case this week, and thereafter 13.90. It is however important that we do not breach 14.45 to the upside, as that does open up a target of 14.70. Given the above, and our slightly bullish outlook, our range for the week ahead is 14.10 – 14.45.

 

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To all our clients, both current and to-be, thanks for your support during the year and have a safe and relaxing holiday season!