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Rand strengthens, touching R16.99 to US dollar

Following a weakening of the greenback
Image: Philimon Bulawayo, Reuters

South Africa’s rand strengthened to R16.99 to the US dollar at around 12.24pm on Wednesday, its best level since before the Covid-19 lockdown began in March.

The currency is currently around the R17 range to the dollar.

Rand vs US dollar over three months

The rand has improved by more than R2 to the dollar since it breached the R19 level twice in April. At the time some market commentators were predicting that the rand could even breach the R20/US$ level.

The local currency improved by almost 1% over the last day against the greenback, which has weakened in the wake of large-scale protests in the US, following the death of George Floyd while in police custody.

On Tuesday US President Donald Trump threatened to send in the military to end the unrest in dozens of cities across America, which is also now home to the world’s biggest Covid-19 outbreak.

Read: Eastern Cape overtakes Gauteng in confirmed Covid-19 cases

The dollar has also come under pressure as the risk appetite of traders has increased, following the easing of Covid-19 lockdown restrictions globally, according to fxleaders.com.

Meanwhile, the JSE is also up more than 1% following a green market day on Tuesday as well.

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COMMENTS   8

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Where are the R25/$ boys now??

If the market made any sense we would have been there by now. Worldwide QE has made a mockery of the old rules.

Make no mistake GSFS….its coming. Along with R40 – R60 to the dollar. Eskom is still broken, SA bankrupt, municipalities failing, EWC on the cards, pension funds under attack, massive and increasing unemployment, massive retrenchments and business closures etc. No one is even sure anymore how much power Cyril actually has or who is actually in charge!! This strengthening has nothing to do with the countries fundamentals but is purely a function of the dollar weakening. Use all periods of rand strength to move funds offshore.

It’s 95% about the weakening of the US Dollar.

The Fed has a balance sheet if about 7Trn and they are printing at a rate of about 1Trn every few weeks now.

Scary.

Still nowhere against the Pound. I would like to visit mates in the UK later in the year (wishful thinking).

George Floyd is going to give us a sub R15/$!

Printing money catches up with you eventually.

Those individuals planning on a 25:1+ ZAR future and positioning themselves and portfolios accordingly will be very well off going into the medium and long term future.

The ZAR always attracts extreme passionate opposing views and likely always will. It is very attractive to trade globally by pro traders as a currency pair, due to its large daily turnover relatively speaking. Also it is extremely volatile and trends strongly when it is moving.

I am a ZAR bear (long term) and have been for a very long time well over 20 years. I am not a day trader so do not care about irrelevant daily moves. We position ourselves and our clients on a long term basis, where the bias is bearish ZAR, this based not on a dislike of RSA or anything else, i am not a rand basher. I look at the ZAR clinically as an instrument to trade and use to protect real business, investments/ savings and pensions in SA, but it is one of many such strategies/ instruments you can use. The trend is long term bearish and nothing is there to suggest we are anywhere near a reversal, look at the charts. If told you the ZAR would be 17 today on the 2nd of January you would have laughed at me and accused me of rand bashing. I have been told the same when the ZAR was at 3.00 and we had targets of 8.00, then again when it was 5.80 and we had targets of 12+ and again at 11.50 when we had a year end view of 16.50 for 2020.

On a yearly basis the ZAR produced a bearish reversal at end 2019 – as such we initiated a position of shorts in early January, part technically based and the balance considering the underlying disastrous and deteriorating fundamentals of the economy – our year end target under normal circumstances was 16.50, we expected a grind lower with the usual spikes and volatility along the way. What we got was covid 19 and a 3 month crash into end of March – on the 2nd retest of the rand against the 19.30 level, there was a serious negative divergence, accompanied with a risk on all over the world – so from at end of April remaining shorts were closed aside from long term positions, which remained but had profits locked in with collars.

From end of April through today we have been ZAR bullish and positioned accordingly, you do not get many gifts like this, although i fear this volatility will become more frequent. Currently at ZAR has only retraced 43% of the years losses. Yesterday we closed over 50% of our long positions and have started to move slowly into short positions. We are watching the 50% and 61.8% retrace as possible maximum extremes, which could see the ZAR pull all the way back to 15.90/ 16.00. New shorts remain collared until the technical criteria are met and the mood changes, to a risk off situation again. Then the appropriate side of the collar is removed – if that be in a bullish situation, which would be only short term then so be it. This is just my opinion. I am forced to take views on the currency 1/3/5/10+ years out especially on big clients.

In my opinion the 25+ boys are the long term smart money and informed individuals.

The SA economy was a train wreck in January we had stage 8 load shedding prior to covid – the economy is now 10 times worst than a train wreck, so it stands to reason that the exchange rate being the currency of a nation will reflect this, until such time as drastic and complete 180 degree turns are made on hundreds of government policies – this cannot happen now and will be forced but not for years to come, as such a long term bear i remain, but will still trade dramatic moves in either direction even if only temporarily.

The old adage used to be SELL in MAY and GO AWAY. Due to covid 19 re-opening of lock down euphoria, this year this has been delayed by a month. I firmly believe a turning point is upon us in the next few weeks – so maybe this year it will be sell in June and run like hell. I expect an ugly 2nd half of 2020.

As we actively manage we do not fixate on one direction and stay there – the market can remain wrong and irrational, far longer than you can remain solvent. At the moment though for interest and openness we expect to be back to neutral shortly in all markets, with some exceptions. And between middle of next week to the week ending 19th June give or take a few days, dependent on unfolding market conditions to be very short our core markets one of which for SA clients includes the ZAR, with stops placed just above recent and coming highs as we blow off into this reactionary counter trend.

A prudent investor will then trail those stops if it moves in his favour, or get stopped out.

I fear if the government does not reverse so many utterly destructive investment policies, none more so than the lock down, which Imperial College has even admitted was wrong – but so much damage has already been done, that 25 is way to optimistic. My personal opinion is that we are reaching a tipping point into an accelerating devaluation, where unless drastic measures are taken, not only do 25 become distinct possibilities, but will become reality, as can 50/100 and 500 over the coming years.

The same people referring to the 25+ boys now, will likely be referring to: ‘where are the 75+ boys now, just after the ZAR has pulled back from 55 to 40 a few years or less from now.

Just my opinion, lets see how this pans out, we can discuss again in 3 years.

End of comments.

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