Although the rand has weakened in the past 18 months and is close to fairvalue against the dollar, the outlook looks increasingly bleak, with local conditions deteriorating and global jitters on the increase. In fact, all the factors are combining to suggest this is the early beginnings of the next storm. From a domestic perspective, the situation has deteriorated severely the past few months, with mine worker violence and unrest taking centre stage. And from an international perspective, the political, economic and social moods are as tentative as ever. And despite Central Bankers’ best efforts to keep Phase II of the financial crisis at bay, all it is doing is delaying the inevitable – a collapse of debt. It’s critical to understand that the underlying driver of the rand, as with all other financial markets, is mass investor sentiment and human psychology… and its movements reflect this change in sentiment from one extreme to the other. So, when global investors are at ease and complacent, they invest in rand markets (currency, bonds, stocks, forex), but when they panic (as global markets become more volatile), they run for cover, and the rand takes a bath……as we saw in 1998, 2001, and 2008. These resultant movements are rhythmic law-abiding patterns which repeat themselves over and over again, in smaller and larger degrees. Our highly sophisticated Elliott Wave model, which analyses these actual historical patterns to forecast future movements (with 81% accuracy), shows that the rand is expected to weaken further for the foreseeable future, with a move not only back into fair-value levels of 8.62 to 8.95, but very likely higher into the 8.80 to 10.10 area. Don’t be fooled by false optimism in the markets – we are in the early stages of the next storm. We have seen – and forecast – this before. Prepare for it now. ● James Paynter is head market analyst with Dynamic Outcomes, a specialist market analysis company that has provided forecasts on the rand (and other currency and commodity markets) to local and international clients since 2005, with an average accuracy of over 80%. For more information see www.ForexForecasts. co.za/go/ZAROutlook
