Turkish interest rate decision drives stability in emerging markets – drives the Rand higher

The Rand opened at R15.30 to the USD on Monday and closed at R15.21. This came amid anticipation of increased stability and positive sentiment in emerging markets. Conversely, the USD lost ground to most other currencies due to weaker than expected US GDP data being released. This further buoyed the ZAR and contributed to its overall upward strength.

Positive sentiment in emerging markets also came amid expectations that Turkish interest rates would be raised last Thursday. Risk appetite improved amongst investors. As was the case for the past few weeks, emerging market dynamics also drove movement in the Rand.

This is evident in the fact that the Rand gained for most of the week, reaching a high of R14.64 against the US Dollar on Thursday, the highest point since the end of August, before closing at R14.74 for the day. The expected Turkish interest rate increase fueled positivity in emerging markets, this, in turn, contributed to upward pressure on the ZAR.

South African data also played a role in the Rand’s gains this week. Wednesday saw the release of higher than expected manufacturing data and improved retail sales for the second quarter of 2018. The data managed to stem some of the fears created around the SA technical recession. However, caution still reigns when it comes to emerging market assets due to the ongoing trade war between the US and China which shows no signs of being resolved. This comes as Donald Trump announced further tariffs on Chinese goods this Monday (17 September).

Now that some stability has returned to emerging markets, interest will once again be on the ongoing trade war between China and the US. This will impact economic data in the medium term, especially in emerging and export economies such as South Africa.

– Justin Fortuin