The first article I came across this morning was titled ‘Rand on the Ropes’, to be honest it looks like the fight is over, the Rands on the ground and the US Dollar is long gone. It wasn’t only the Rand that took a beating yesterday, so did the local stocks and bonds. It’s clear that for now, investors favour safer US investments over your risky, high yielding emerging markets. Its no surprise really when you consider the World Bank yesterday dropped their economic growth forecast for South Africa from 1.4 % down to 1%.
On the data front, we have US Non-Farm Payrolls due out later today. Its an important number because it measures the total number of new jobs created outside of the agricultural sector. The market is looking for a high number here to support their view that the US Economy is booming. Its unlikely we’ll see a disappointing number here but if we do, then we can expect a pull on the USD/ZAR rates.
Most of the damage this week has been done in overnight US session and yesterday was no exception with the rate topping out at R 14.9350. As it stands this morning, we’re at cross-roads with the market sitting squarely on the 50% Fibonacci retracement at R 14.85 to the US Dollar, R 17,08 to the Euro and R 19.35 to the Pound. We’ve taken a big hit on the currency this week and I don’t think we’re out of the woods just yet. The next level up from here is R 15.00. We should see some resistance around the R 14.98 – R15.00 mark but clear of that its R 15.18, R 15.32 and then on to R15.50.
In terms of trading strategies, the sentiment is still very much negative, so USD buyers need to adjust their risk / reward parameters based on current market rates, view of the market and timescales. For short term payments, you should’ve already covered 20-30% earlier in the week, I would look to secure a further 30-40% now and re-evaluate the balance based on what the market does at R 15.00 to the USD. Alternatively, setup a tight stop at R 15.10 to cover off the risk.
For now, our view of the market has not changed, we are still trading in an upward trend which suggests that future import payments are more than likely going to cost more. If you would like to discuss hedging options and how to use FECs (Forward Contracts) to reduce risk – please get in touch with our dealing desk on 011 888 0125.
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