The Weekly Rand Report: Rand in the red as the Fed raises rates. Image: Adobe Stock

The Weekly Rand Report: Rand in the red as the Fed raises rates

The rand took another hit last week, weakening against 16 of the top 19 currency pairs.

by Sable International

10-05-2022 16:19

in Business & Finance

The Weekly Rand Report: Rand in the red as the Fed raises rates. Image: Adobe Stock

Amidst a host of interest rate hikes, South Africa’s emerging-market currency lay at the mercy of global monetary policy. And with South Africa still facing loadshedding and declining gold prices, the rand is facing additional headwinds. These localised risk factors, coupled with the global market’s “risk-off” shift, have led to a notable ZAR weakness.

The US Dollar maintained its rally in the FX markets, strengthening against its rivals as the Dollar Index (DXY) appreciated by 0.62%. Last week’s main market event was the US Fed interest rate decision, where Fed chair Jerome Powell raised the US interest rates by 50 basis points, from 0.5% to 1%. Additionally, US nonfarm payroll data was released on Friday, highlighting how the US had added more jobs than anticipated. This helped the USD in the weekly trade, as it was able to hold off fears of stagflation.

The rand lost its footing against the greenback

The rand subsequently lost its footing against the greenback, shedding 1.32% in value. After opening at R15.81 and breaking through the R16.00 barrier, the USD/ZAR pair touched a high of R16.20, before experiencing a partial correction and closing the week at the R16.00 support level. The EUR/ZAR pair followed suit, climbing by 1.38% during the week. After opening at R16.67 on Monday, the pair broke through the R17.00 resistance level, before settling around R16.90.

Like the Euro and USD, the Australian Dollar had a great trading week, strengthening against all but one of the top 19 currency pairs. Last week, the RBA raised interest rates by 25 basis points instead of the 15 expected by markets. This resulted in a solid uptick in the AUD over the short term. Consequently, the AUD/ZAR pair appreciated by 1.56%, rising from an open of R11.17 and closing the week at R11.33 on Friday.

On the other hand, the GBP had a terrible week, faltering against most major currencies. Despite the Bank of England (BoE) raising interest rates, the market was disappointed with the 25-basis point hike. The pace of rate hiking between the UK and US is now diverging and the market sold off the GBP. As a result, GBP/ZAR moved 0.50% lower. After kicking off the week at R19.88, the Rand gained 11 cents on the Pound, closing trade at R19.77.

This week, analysts will look to see if the recent move in the USD can maintain its momentum. US inflation data will be released on Wednesday, and it’s expected to taper down. If it moves higher, this would be problematic for the USD. And while there is no market-moving data to come out of the Euro area this week, the geopolitical risks related to the Russian invasion of Ukraine remain a major concern. The fallout from the invasion is impacting all facets of globalisation and thus the whole world faces extreme risks with the possibility of this conflict escalating.