The Rand battles on amid contagion risks, EM currency crises and a local recession

A week ago, on 4 September, the Rand plummeted after growth data indicated that the South African economy has slipped into recession after two quarters of negative growth. The timing of this data has been extremely inopportune, as the ZAR has been on the back foot in recent weeks with the contagion effect from political and economic crises in Turkey, Argentina, Pakistan and Sri Lanka.

After the sudden decline in the ZAR, Finance Minister Nene appeared on Bloomberg stating that the government is working on a package to respond to shocks such as these. What this entails remains to be seen. Moody’s, the last rating agency to hold South Africa at investment grade, released a statement on Thursday indicating the continued subdued economic activity and the most recent move into recession poses a risk to South Africa’s rating. If they were to drop the rating, this could see the ZAR fall even more.

On the global front, there seems to be progression in Brexit negotiations between the UK and EU. On Monday 10 September, Barnier, the EU’s chief Brexit negotiator, announced that a Brexit deal could be realistically concluded within the next six to eight weeks. After this news, the GBP strengthened against most major currencies. This will be a key point to look out for in the next few weeks and should be followed closely.

We will mostly be looking at developments in the Brexit talks this week. Something major to look out for on the local side is the announcement of structural reforms by President Ramaphosa. If this pleases the market we could see the ZAR pull back slightly, although a plan is only so good until it has been implemented. This announcement will hopefully add a positive note to the impending review of the SA credit rating by Moody’s.

Date	Data	Effect
Tuesday	·         UK Average Hourly Earnings	· Expected to rise – this would support the GBP, thus could be a negative risk factor to the ZAR.
Wednesday	·         SA Retail Sales	· Expected to rise, if this does happen we can see this as ZAR supportive.
Thursday	·         UK Interest Rate Decision ·         US CPI Data	· Expected to remain stable, although any indication of a change in rate hiking cycle would cause volatility. · Expected to remain stable, any increase in US inflation would be supportive of the USD and thus ZAR negative.
Friday	·         US Retail Sales	· Expected to drop, this will be indicative of a possible slowdown in the US economy and thus USD negative.

– Sebastian Steyn