Temporary Rand Recovery awaiting ANC Electorate Decision

It is a very noisy environment at the moment and difficult to make head or tail of it all.

Emerging Markets’ exposures are being questioned, oil prices are surging, South Africa’s political environment deals more fresh scandals with each passing day and the level of accountability is non-existent. The country’s current fiscal position is in dire straits, the ANC’s election race is entirely uncertain and the December elective conference of the ANC is being billed as a make or break for the country as well as the party. Not that the elective conference on its own changes all that much, but there will be some form of rekindling of hope, albeit temporary, in case of Cyril Ramaphosa taken over the reigns over the country.

Against this backdrop, it was, therefore, curious to see the Rand stage a recovery yesterday. The Rand-environment has been characterised by portfolio outflows more recently that have unfortunately more than offset the surplus in the trade account. This morning, there have been reports of some inflows that materialised yesterday, which suggests that foreigners are simply biding their time and waiting for discounts to their exposure in South Africa before buying back in.

Whilst local economic prospects look concerning and are trending in the wrong direction, the country is unlikely to find itself desperate in the very near term and so for speculators, this remains an environment they can take advantage of.

Intra-day, it was interesting to note the manner in which the USD-ZAR was not able to sustain levels closer to the prior highs above 14.3000. Technically speaking, the formation has now formed into a “falling M” formation which is often typical for a topping out and it is not expected to reach the 14.30 exchange rate again in the nearest future. That is unless the political clown concert does not come up again with a new surprise move, which affects the fiscal threads the country hangs on.

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