Local policy environment and fiscal outlook weights Rand lower as emerging markets stabilise

Gains were recorded during the morning trade, reaching a high of 14.21 against the USD by 18:00, however, the Rand’s fortunes reversed as it closed at 14.47. This volatility reflects the continued emerging market volatility, especially in the ASEAN countries. Sentiment was also driven by developments in the local policy environment. Specifically, land reform policy, which came under the spotlight again last week.

The rest of the week saw a combination of emerging market ripple effects and local policy and economic dynamics pressure the Rand downwards. This came amid further declines in the value of the Turkish Lira (TRY) and losses in the ASEAN country stock markets. Some good news did, however, come out of last week, with the US and China indicating a potential ease on the trade war by scheduling trade talks for the coming week. This stabilised emerging markets after Wednesday.

Interestingly, the Rand continued its downward trend for the week (contrary to other emerging market currencies) and broke the 15.00 barrier to the Dollar on Friday. The overall downward trend has been driven mainly by uncertainty in the local policy environment and a less than favourable South African fiscal outlook. Further gains in major (and safe haven) currencies, such as the USD and the Euro, also contributed to a weaker Rand, as investors remained risk averse and avoided emerging-market assets.

The Rand traded stronger on Monday and early morning Tuesday as emerging market stabilisation started catching on in the South African markets. The week ahead can be expected to deliver similar dynamics, as further stabilisation in emerging markets is expected, as some degree of certainty with the trade war is established after US-China talks. This will go a long way in improving sentiment toward emerging-market assets. All eyes will be on the SA inflation figures to be released on Wednesday, which, if higher than expected, will contribute to negative sentiment toward the Rand, further accelerating a downward trend for the week ahead.

Date	What’s happening	Why it’s important
Tuesday 21 August	· USA API Crude oil stock change	· A change in oil stock indicates the relative strength of demand (US is one of the biggest users of crude). This will drive long-term prices in Dollar terms.
Wednesday 22 August	·  SA inflation rate ·  USA EIA Crude oil stock change	· A higher than expected (above 5%) will drive the Rand lower against major currencies. · US oil stock will indicate the potential future price movements of crude in Dollar terms.
Thursday 23 August	· Japan Nikkei manufacturing PMI · ECB Monetary policy meeting	· Manufacturing data indicates the relative strength of Japanese economy (non-farm production) and will impact medium-term export capacity. The Japanese economy is a useful indicator of the Asian market strength. · A decision on the accounts and interest rates of the ECB is an indicator of the relative strength of the Euro.
Friday 24 August	· Japan inflation rate · Germany GDP q2	· The inflation rate can be used as a determinant for the value of the Japanese Yen. · Positive economic data from one of the biggest EU economies can drive the strength of the Euro in the coming week.

– Justin Fortuin