South Africa - rock RAND roll

Twelve Cabinet ministers have just announced their resignation now. This includes Trevor Manuel
USDZAR in for a rough ride.
Long anybody?

Just a quick note, I've noticed the local news is either deliberatly delaying news to help the sensationalism or they have a serious lag in information, I'm putting my money behind the sensationalism. Trevor Manuals resignation was reportedly taken back after ANC asked him to stay on longer. Etv and SABC only showed the part of him resigning and then 10mins later said that he was willing to "assist" when in the mean time, 3 hours before the E-news and SABC, Manual had pulled back his resignation. If there is any news to currently trust, I'd say only watch Reuters newsfeed on South Africa, there is some seriously screwing around in the local news.

I'm sure he will "officially resign again" though once Zuma comes in as it's natural for those positions to be renewed with new faces (not that there are many around).

Yeah loading up on longs here. I saw an interview of Nedbank Capital talking about "how surprised they were on the drop in the Rand etc" hahaha god I laughed my head off, am I glad I don't bank with Nedbank anymore, they'd have better luck with a group of monkeys trading there.

But yeah, just that heads up with the local news, don't trust what they saying, especially time wise. +3 hours out?! Something fishy there.

https://gm.bankofny.com/Research/FXC...ManagerID=7672

A nice commentary piece on South Africa with some graphs. Not sure how long they will be viewable for, so head on over asap.

Quick one, almost forgot.

Out of 400 votes, 261 (+/-) were for the new SA president (I can't pronounce let alone spell it, so google it). News reports it as an "overwhelming majority vote"... where'd these guys learn math? It's just over 50%, that's not a majority, on top of that some ministers where not there to vote and they had, I think it was, 40 no-votes for those who were there. Far from a "majority" as reported by local news. He has also just shuffled around cabinet and promoted a lot of ministers to higher positions that have been terrible in service delivery and should more than likely be fired than promoted.

Have a great week.

welcome to my world.

you have a good one too

Ummm, 261 is 65%. That's pretty decisive and yes that is a majority. We will elect a president here in the US with less than 65%, way less and it won't be close.

If 10 is not taken out soon we could see 12 shortly, as things are looking gloomier and gloomier by the day.

The impending recession that South Africa will face (is here as two quaters of neg growth = recession) was not blown away by the acting presidents (ZUMA'S stand in) firm denial that, " South Africa would not enter a recession," because he said so.

The latest news that government spending (hopefully with borrowed funds) will fill the gaps in the sectors that are hemorrhaging at the moment could also turn out to be pie in the sky, as developing nations take a back seat with their begging bowls till the real economies that feed them get back on their feet. (Not soon if you watch the news)

With the economy going belly up, politics turning sour together with corruption and very left leaning policy changes being implemented, more and more victims of beee and crime will leave. (you know the ones who said they would never leave but are sold up and packed, just waiting for their adopted country to let them in. 5 year waiting periods for Canada and nobody wants to live in Canada anyway. )

Bottom picking or catching falling knives is not my style so I'll just keep plugging away at the long term one way trade.

The swap earned is not worth the risk taken. As to the carry trade, where it is now?

yeah, quite funny regarding the whole Canada thing, heard so much about that haha

Some Rand strength lately, might head down to 7.10's again, some hints on the daily. Though... looking at some moving averages, 9.11 is in there too so that might provide some support.

I see RMB has changed their website, there's some new area called the FICC that handles their distribution of research notes... it's not updated regularly though... pity as it was on time everyday on the previous site.

Any interest in a ZAR specific site? If there's enough cheers I might consider.

As for the 261 votes, 30 or so weren't there to vote, so that would've leveled it even more. This whole COPE party that's been born now is a bit of a laugh, "yes lets vote for a party that just split up from the ruling party...?" They'd all be voting for the same people that they were all just disgruntled about... but now under a new democratic name.... Africa, gotta love it. To me it smells of a holding company structure... company ABC owns B as well as the competition C but they look different in order inspire change, especially when Mbheki is apparently connected to its startup hahaha classic.

Getting back to the economics, with rates falling elsewhere and talk of SA's inflation falling as well, it will be interesting where the Rand goes in the near term. Being a higher rate might be attractive but it's nearing elections and people are already being harrassed and attacked near voting areas. There has also been a lot of police reports being slipped under the desk. Not to mention Zimbabwes issues increasing tension as Mgabe resists to go down without a fight.

Anyway, enjoy the weekend all.

Hi guys, just launched therandreport.com which focuses on the USD/ZAR pair giving hourly, daily and weekly analysis.

Feel free to pop around and give it a read.

Have a great weekend.
Brad

Just posted our future projections on South Africa's economy and the Rand leading up to the elections today, enjoy.

http://www.therandreport.com/?p=119

Very strange, but for some six months (counting from October 2008 to March 2009 inclusive), the Rand has averaged 9.95:$, month after month, like in flat earth.

There were sizeable daily variations, of course, at one point near 12:$ at the moment of maximum stress during 4Q2008, but on average a very flat kind of existence all round.

It was as if the world didn’t go walkabout, Eastern Europe didn’t go bankrupt, our equity market didn’t lose 40%, we didn’t have to fund an R200bn current account deficit and our politics didn’t feel otherworldly.

With that kind of tree hugging going on, what is a man supposed to forecast comes next?

Surely, as global shocks go, we can’t go bigger than what happened last September/October? And that was good for a step up from near 7:$ to near $10:$. That’s a 40% Rand weakening.

The betting is that the true big shock value lies behind us. Then also do allow for the IMF getting reinforced with capital, and fully expected to bail anything that needs bailing, in addition to all those Fed and ECB swap lines cluttering the world.

Also, the Rand has been undervalued at these levels. It isn’t as if the Rand is inappropriately valued, inviting corrective attention.

So downside for the Rand there might be, towards 12:$ and even $15:$, but it is not obvious what could deliver this shortly. This was before considering the outbreak of swine flu in Mexico last week and what it could potentially lead to globally, if not contained.

On the other hand, the Rand may not have much firming potential either if the SARB were to offer countervailing pressure by resuming its foreign reserve topping up, bearing in mind the state of the economy (down) and our exports (heavily down).

So far in April the Rand has moved back towards 9:$, but how much further could it go?

A positive shock could send the Rand sailing towards 8:$, never mind 7:$, for instance because New York equities are up and so are ours, or Chinese growth pulls commodity prices higher and us as well in its slipstream, or the Dollar sells off on Bad Hair Day and we get elevated, or all those good things together doing the pushing.

Yet the SARB might not like such Rand firming, and could start mopping (accumulating) some of the excess capital inflows doing the heavy lifting, storing such funds in the foreign reserves (and then presumably buying Re-elect Obama Bonds, ere long known as ROBs).

Then again could swine flu start pushing the Rand weaker if high yielders get penalized by a return flight to safe havens shortly?

Ultimately, we are not in control of the Rand, given global events and how they impact on Rand sentiment. We certainly seem to have limited defenses against a weakening Rand trend.

Yet internationally there also seems to be less proprietary action nowadays at big investment banks, with the Rand being just one beneficiary getting somewhat less attention?

Certainly, fundamental shock weakened the Rand by 40% in 4Q2008, but its stabilization thereafter came as a bit of a surprise, at a time when many people thought yet more weakening the natural thing to happen, given the severity of global events throughout.

At some point in recent weeks, however, the world seems to have come out of its deepfreeze. To some this is still a bear market rally. For others there is already more going on than just a bear turning over in its sleep. In other words, here comes the long awaited turn.

Only to encounter this weekend the logic of a swine flu outbreak in Mexico.

If the world is still going to get serially disappointed by non-progress in the US (and European) banking saga, or any other disappointment the world wishes to dish up (swine flu being only one potential candidate), we will find high yielders relapsing back towards their sold off levels. For the Rand this suggests 10:$, if within a wide 200 cent trading band. But potentially worse, depending on any averse new global shocks.

If, however, the world is steadily moving on, laying the foundation for sustainable recovery, by addressing the banking mess, getting fiscal stimulus going and rebooting IMF finances, with the global economy starting to respond (inventories, durable goods, production, capex) and successfully containing the swine flu outbreak, then the global investment picture will also keep morphing.

Between mid-2008 and Easter 2009, we saw the puncturing of the commodity boom and a great capital withdrawal getting underway as money started to flee the high-yielding-but-risky global periphery for the low-yielding-but-safe global centre.

Ironically, the safe financial centre then imploded after 15 September, shortly followed by a global real sector collapse, but this apparently added even more strongly to the centre’s safe haven appeal (don’t ask why, it just reminds too much of Fatal Attraction).

After five long months of debtors prison, March saw early stirrings, both on the US banking front (Timothy Geithner swinging his weight around) and in the economic data.

Baltic shipping index stabilizing after selling off rather severely, global car sales picking up (Germany, Brazil and China offering incentives, with the UK about to follow), industrial PMI signaling positive intent regarding inventories and new ordering in the US and Europe, and not forgetting commodity prices ending freefall and recovering. Also select data about exports (Japan, others) and business confidence (Germany).

Something is stirring, green shoots or whatever, but it is also informing equity and credit markets.

In the process, the great global capital withdrawal from the risky periphery seems to be reversing once again, some capital starting to leave safe havens and getting back into carry trade and peripheral high yielders.

In the process, the Rand also got lift, getting below 9:$ and the SARB allowing this. But from here onward, any further global favouring of high yielders and thus the Rand may see more SARB reaction via renewed foreign reserve accumulation.

Time will tell, not least regarding swine flu. Plan for a Rand in 8.50-9.50:$ territory for the time being, though allow for wide daily trading ranges of up to 100 cents either way.


Cees Bruggemans is Chief Economist of First National Bank. Register for his free e-mail articles on www.fnb.co.za/economics

I think it is clearly evident on the monthly charts how the rand was massacred when the USD started its flight back home and risk aversion came into effect. With the pull back on the rand after touching the high 11's, it actually hit the final fib target and profit was merely taken causing a movement back down towards the 8's (the move to the high 11's was a perfect 61.8 fib movement on monthly). It's currently setting itself up for a pot and handle formation and a vault towards the 15:$ as mentioned. It's also given very good feedback to us traders that it's responding to technical setups very well and makes what traders usually think, an unpredictable currency, very predictable or at least a very high probable predictability.

As for SARB, I've never had faith in them and really think they don't have a clue what they doing regarding the rand besides Tito cracking bad jokes at press meetings and singling out reporters and economists that don't agree with his thinking.

I believe the only way forward for the rand is down against the dollar, ranging from given fundamentals and technical info. Any further strength in the rand is pure opportunity for getting in at a cheap cost.

Does nobody trade the rand anymore??

Any thoughts on where the rand might go? Up or Down? Thanks!

The rand can only go one way from here on out. Just watch out for spikes the wrong way.

With the $1,3 trillion or so deficit budget, betting rand will go to R6,75 over next 9 months, just to strongly reverse and weaken towards year end

lol dang i was hoping this thread would be about south africa world cup 2010. anybody going to that?

i would love to but its definitely a bit out of the way lol

Dont know why I didnt get in this pair sooner-paying about 5 pips on the spread and of course the carry is amazing. Made a nice move out of this zone so I will be looking to hold this short as long as I can possibly adding to it if we can knock out 10.5

Strategy carry in EM segment again attractive

After the decline in the second quarter amid the strengthening of the dollar and capital flight from emerging markets, the profitability of arbitrage strategies in the foreign exchange market is again positive. Traders borrowing dollars to buy currencies from Mexico, Argentina, and South Africa receive a particularly generous reward.

Most carry deals with major emerging-market currencies are still losing money this year, but their recovery over the past two weeks may signal that fears of trade wars are fading, and developing-country Central Banks are regaining investor confidence. On 21 June, Mexico raised its key interest rate to its highest level since 2009, following similar moves by Argentina, India, Indonesia, the Philippines and Turkey.

Other countries, including South Africa, Brazil, and Russia, have signaled a reversal of the rate-lowering cycle or preparations for a rate hike in case pressure on their currencies increases. On June 27, the Bloomberg dollar index fell from an annual high of 1.4%, providing additional support to the currencies of the EM-segment.

Investors put in the price of improving the situation in a number of developing countries. The implied yield from the carry strategy with South African Rand in the one-month perspective (taking into account volatility) last week showed the maximum growth for the year and is now at the maximum since the beginning of June.
This rise is due to a decrease in the amplitude of price fluctuations. Last week, the J. P. Morgan Emerging market Volatility Index fell to its maximum since 9 March.

Some global banks are also switching to more optimistic scenarios. For example, on Monday Citigroup Inc. reduced his long positions on the dollar in pair with Rand, Polish zloty and Hungarian Forint. Meanwhile, Credit Agricole CIB recommends customers to start buying Chinese yuan.

"We believe that the dollar will retreat for some time against the background of global repositioning in favor of buying currencies of developing countries," Citi analysts said.