Rand slips to a historical low

Rand slips to a historical low against the Pound

The big talking point of the last week was the devaluation of the China’s currency. The Rand dropped to its lowest level (R12.7250) in 14 years to the Dollar on Tuesday and Wednesday. This decline, along with fellow emerging market units, followed China’s decision to devalue its currency to support a stuttering economy and boost exports. The USD strengthened on the back of this devaluation.

Rand slips to a historical low

On Friday, the Rand slipped to a historical low against the Pound (R20.1071). This was fuelled by the worries about the local economy and prospects of imminent US policy tightening, expected as early as next month. Fiscal tightening by the Fed could trigger a currency war with countries competing to devalue their units. In other trading, the Euro firmed after Greece reached a technical deal on a multi-billion bailout with its international creditors following marathon talks.

What to look out for this week? In South Africa, Stats SA will release the July CPI data on Wednesday. Expectations pencil in a pick-up in inflation to 5.0% y/y in July from 4.7% y/y in June.

On Wednesday we will see the release of the Fed minutes of the July FOMC meeting, which should provide more information on their thinking with regard to when they are likely to hike rates. A hawkish stance from the Fed will likely put further pressure on the Rand.

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