Banking / stockphoto
Trade wars and hikes push down on emerging currencies and the Rand
We have progressed quite drastically over the past week, last week we saw the Rand move from 17.83 to 18.45 against the GBP in the space of 24 hours. The ZAR is known for feeling the brunt of emerging market selloffs, since it’s one of the most liquid EM currencies traded on the open market. Even in the absence of important data releases it looks like it could be another rough week ahead for the ZAR and other EM currencies.
Banking / stockphoto
The primary reason for the sudden decline in the ZAR would be due to the renewed trade war rhetoric portrayed by Donald Trump. This has resulted in tit for tat tariff practices between the US and China. The Eurozone has also been pulled into the fray with US tariffs and free trade being a major concern.
Data wise, the main surprise last week was with the Bank of England Monetary Policy Committee. At this meeting, an additional member of the committee voted for a rate hike. This put the GBP on the front foot as many traders did not expect this and the sentiment in the market is that the BoE might raise rates sooner than anticipated. This would be more bad news for EM markets, the Rand included.
There isn’t much data to focus on this week, the main risk factor in the market would be geopolitical issues and trade tensions. Something to consider in South Africa is the SARB’s composite business cycle indicators on Tuesday. The release of this is usually a subdued event, but with the recent terrible GDP data, this could give an indication as to how the South African economy is fairing.
On Friday we have EU CPI data which is expected to improve. In the event that this does occur, we will see EUR strength coupled with ZAR weakness.
| Date | What’s happening | Why it’s important |
| Tuesday 26 June | SARB’s composite business cycle indicators | If the data shows a downward trend in the business cycle we can expect ZAR weakness. |
| Wednesday 27 June | BoE’s Governor Carney speech and Financial Stability Report
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Depending on the tone of Gov. Carney’s speech, the GBP could find strength or weakness. This should be monitored as volatility is to be expected. |
| Thursday 28 June | SA PPI data | This is similar to the data on Tuesday which is a leading indicator of business activity in South Africa – a downturn in PPI is a negative risk factor to the ZAR. |
| Friday 29 June | EU CPI data | This is expected to increase, which is good for the Eurozone, thus this would be good for the EUR and bad for the ZAR. |
– Sebastian Steyn
