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Sturdy Rand continues rally

The Rand opened last week on the backfoot after the release of disappointing fourth quarter GDP data. The economy’s growth contracted by -0.3%, somewhat worse than the 0.4% growth that was expected.

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A similar pattern was seen with mining and manufacturing, which fell by 11.5% and 3.1% respectively. The general appeal for the higher-risk Rand was relatively limited as commodity prices remained steady.

Things took a turn for the better as the week progressed, with Friday’s US non-farm payrolls coming out worse than expected. The Rand extended its gains, climbing 0.34% to 13.14 to the Dollar, after the US employment data solidified a view among Wall Street’s top banks that the Fed will hike interest rates this week.

This week is looking less busy in terms of South African data. Investors will likely to be occupied with the Fed’s decision on Wednesday.

Although many analysts are saying that a hike is now inevitable, this has already been priced into exchange rates and is unlikely to move markets. What is more likely to affect currencies is the Fed’s outlook for how rates are likely to change beyond this decision.

Locally, the South African Statistics Office will be releasing the Manufacturing Production Index on Tuesday and retail sales on Wednesday.

What to look out for this week

Day What’s happening? Why it’s important
Tuesday South African Manufacturing Production Index The percentage changes in the Manufacturing Production Index captures the rate of variation in output. A high reading is seen as positive for the Rand, while a low reading is seen as negative.
Wednesday US Fed rate decision The statement may influence the volatility of USD and determine a short-term positive or negative trend. A rate hike will see emerging currencies like the Rand weaken. Market consensus is expecting the rates to go up.
Thursday South African retail sales Monthly percent changes reflect the rate of changes of such sales. Changes in retail sales are widely followed as an indicator of consumer spending. Generally speaking, a high reading is seen as bullish for the Rand, while a low reading is seen as bearish.

– Calvin Matsaure

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