Andre Cilliers makes sense of confusing Rand influences – from KZN Riots and Chinese lockdowns to higher inflation

In this podcast, TreasuryONE’s Andre Cilliers shares his insight into the likely currency movements, putting his excellent recent forecasting record at risk. The currency strategist unpacks the reasons for the rand’s volatility, why SA’s exchange rate moves in bands, and the danger points to watch out for. Cilliers also provides some understanding of the impact three major global issues are likely to have on the local currency.

Andre Cilliers on the performance of the rand

If we look at the last week and a half, we had a bit of a disaster in South Africa. We’ve had a president calling out a national state of disaster. Fortunately, this one doesn’t come with lockdowns and everything, but it is a national state of disaster. More than one province is affected by this, with a harbour very negatively affected; and it is our biggest harbour in South Africa. It will have an impact throughout the country; how goods get delivered and when they get delivered. It could have an impact on prices, etc. We have already seen the IMF coming in downgrading growth forecasts because of that. So, there’s a little bit of local stuff coming to the forefront. For a long time, we have only spoken about international stuff and there was very little on the local side that impacted the rand. But KwaZulu-Natal does impact it and it has an influence. I think it brings to the forefront a couple of jitters about the rand. Hence, we are a little bit weaker at this stage.

On KwaZulu-Natal’s disaster and Eskom highlighting the country’s vulnerable points

Once again, we’ve seen Eskom come out of stage two and suddenly it becomes stage four. If you throw that back onto the KwaZulu-Natal situation – where a lot of money and infrastructure is destroyed – Eskom has got a lot of work to do to restore power to a lot of places. Then comes power stations that don’t work. It highlights all these vulnerable points of the country that we put on the backburner, but they are there and it needs a small little ignition for that fire to explode and have an immediate impact. Then you have the rating agencies; the IMF, you have everybody jumping on the bandwagon pointing out this extra money that needs to be borrowed could have an impact on the fiscus, on growth, on inflation, on interest rates. On the back of that, you sit with exporters and importers suddenly reacting and that reaction into the markets [results in] jumps like we’ve had at this time. I was right in saying the rand goes to 14.50 if it breaks the 14.80 level, and could very quickly go back to 14.50. Once it breaks one of those points, those become resistance points on the upward side again. We could see the minute we broke the 14.80, it was a very quick move to its 15.10 and when we broke the 15.10 this morning, it started a very swift move back to the 15.30. If we go back three weeks, four weeks of discussions, these are exactly the parameters we had then [and they] still persist now. And as you break through those technical points, you go into the next level of trading ranges.

On significant contracts that globalised companies are committing to

On a $1m, 14.50 and 15.50 make a huge difference on a R1m. That is R1m that goes out of your pocket or into your pocket. As you mentioned, we are working with big numbers. The trade in South Africa of importers and exporters is huge. It is not uncommon for what people deem to be an export on the fruit side to have exposures well in excess of $40m and $50m per annum. Now you take a rand on $50m and then you say it’s a R50m gain for them, whether they cover or uncover. So, huge numbers make a dramatic impact on the bottom line of a company.

On South Africa’s exchange rate moves

It is because we are a much smaller economy and we’re priced in rand and pay in euros and dollars. But looking at the euro, we have been up at 109.36 this morning against the dollar coming back from a 107.80 and 107.40 level just two days ago. This is a huge movement. It seems to be only 200 points, but it’s 200 points on a very low number. So, percentage wise, big moves. And yes, it will have an impact on the results.

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