The year 2015 will go down
as one best forgotten for
the rand – in fact, one best
forgotten from a South
African perspective, be it
economically, financially,
socially or politically.
December seemed to be a
fitting end to a rollercoaster
year, with a Fitch downgrade
to a notch above junk status
and very disappointing
current account data being
the catalyst for increased
rand volatility and
nervousness
The last thing that was
needed was some extra
impetus or bad news.
Which is just what we got
– with the firing of Finance
Minister Nhlanhla Nene,
appointment of unknown
yes-man David van Rooyen,
and four days later the
respected Pravin Gordhan
back at the helm of National
Treasury.
And so ended a calamitous
year for the rand which lost
33.7% of its value against the
dollar, making it one of the
worst performing currencies
for the year.
This is a substantial loss
of value in just a year. But we
have seen these moves before.
And worse!
As can be seen from the
historical chart, the rand’s
depreciation in 2015 is less
than both the currency crises
experienced in 2008 and
2001, when the rand lost
38.3% and 58% respectively
against the US dollar (with
1984 being the worst on
record at 61.8%!)
And what happened in
2001 and 2008 happened this
time around too, with these
extreme moves coinciding
with extreme events coupled
with extreme emotions.
The reason for this is that
financial markets are moved
by mass human emotion,
which drives the market from
one extreme to the other
– from extreme optimism
(complacency, hope and
greed) to extreme
pessimism (anxiety, fear and
despair).
And at major extremities
of trend, people tend to
make extreme, irrational
and emotionally charged
decisions and actions, which
are reflected in the market
price action – which fuels the
already hyped up crowd...until
everyone has given up all hope.
BUT… the darkest hour is
just before dawn, and so it is
with financial markets.
When the point is reached
where there is nobody left to
turn negative, the trend has
reached its end, and a reversal
occurs – as can be seen from
the years following the peaks
in 2001 and 2008, when the
rand strengthened.
Our president has
continued to fuel the negative
sentiment into the new year
through absolving himself of
all blame for the crisis (‘the
market over-reacted’), which
of course caused the market to
‘over-react’ a little more, and
push the rand to fresh lows.
The rand is now at an
extreme of pattern and
sentiment (how much worse
could it get?), which signals
that it is overdue for a
welcome change in mediumterm
trend in 2016.
However, there is a risk
of further ‘over-reaction’
before that occurs.
For more info on the rand,
see www.ForexForecasts.
co.za/go/ZAROutlook.
• Dynamic Outcomes
is a specialist forex
solutions company that
provides forecasts, tools
and solutions to clients
with rand foreign
currency exposures.
