EM currencies including ZAR down as trade war escalates

On top of this, the Rand once again posted greater losses than its peers last week, a suggestion that the currency’s ongoing weakness cannot be blamed solely on external drivers. Given the high level of liquidity available in the ZAR, the overall perception is that during times of stress, the Rand is used as a proxy hedge for emerging market risk in general.

Meanwhile, real effective exchange rate data compiled by JP Morgan shows that the Rand lost about 4.5% in trade-weighted real terms over June – the worst performer in a 22-currency basket. This also supports the thesis of high levels of shorting interest in the market that is not necessarily linked to domestic fundamentals.

Global trade war rhetoric is not helping either, with the Trump administration’s desire to reshape global trade dynamics drawing questions as to the future profitability of South Africa’s raw material exports; a major foreign currency earner for the country.

The week ahead in South Africa sees only a handful of minor economic data released to the market, which means events in the offshore space are likely to remain in the driving seat for the Rand.

New vehicle sales numbers for the month of June at 13:00 (BST) on Monday and the market is looking for sales growth of 1.5% on an annual basis, down from 2.9% previously. The Standard Bank PMI at 08:15 am (BST) on Wednesday and electricity production data on Thursday morning. No forecasts were available at the time of writing, although the latter half of the week is likely to see currency markets dominated by the implementation of US tariffs against China and a possible escalation of US-EU tensions, particularly for emerging market currencies.

Day	What’s happening?	Why it’s important
Wednesday 4 July	Standard Bank PMI	The Standard Bank South Africa Purchasing Managers Index tracks business trends across private sector activity, including mining, manufacturing, services, construction and retail based on data collected from a representative panel of around 400 companies.
Friday 6 July	Gross Gold & Forex Reserves	The Gross Gold & Forex Reserves released by the South African Reserve Bank presents gross reserves in foreign currency and gold that the Central Bank holds. Reserves can be a precautionary measure for countries susceptible to financial crisis. It can also be used to manipulate exchange rates.  A high reading is seen as positive (or bullish) for the Rand, while a low reading is seen as negative (or bearish).

 

– John-Edward Ferreira