Rand Report: Rand pullback after overshooting price action: Image: Supplied

Rand Report: Rand pullback after overshooting price action

The South African rand strengthened against 18 of the top 19 currencies we monitor. The strong performance was not unexpected.

by Sable International

18-04-2023 17:09

in Business & Finance

Rand Report: Rand pullback after overshooting price action: Image: Supplied

The South African rand strengthened against 18 of the top 19 currencies we monitor. The strong ZAR performance was not unexpected, considering the recent overshooting price action. The currency has been majorly oversold in the past trading sessions, and a pullback was anticipated.

The softer US data also helped the improved ZAR position. The recent greenback weakness was largely driven by lower inflation print. The US inflation rate came in at 5.0% in March, declining further than expected, from the previous reading of 6.0%. In nine consecutive months, the price pressure has cooled. Food prices, along with energy and gasoline costs, were contributors to the inflation slowdown.

US producer price index (PPI) data indicated a 0.5% decline in March, despite expectations for producer price pressure to remain stable. Retail sales also fell by 1% in March, adding to the 0.2% downtick in the prior month and further supporting the view that economic activity in the US is cooling.

The Federal Open Market Committee (FOMC) meeting minutes were also released last week, where all members favoured a 25-basis point (bps) hike. However, committee members remain cautious about the lagging effect of rate hikes.

As a result of these recent data events, the Dollar Index (DXY) moved 0.53% lower. After opening the week at 102.10 and briefly breaching the 101.00 support level, the DXY closed at 101.55 on Friday. Due to a rotation out of the USD and into the EUR, the EUR/USD pair appreciated 0.90%.

The USD/ZAR pair declined by 0.71% last week. After kicking off at R18.23 on Monday and bottoming out at the R18.00 support level, the pair ended weekly trade at R18.10.

The South African Rand and Great Britain Pound Pair

The GBP/ZAR pair experienced similar movement, moving lower from R22.65 and closing at R22.47.

Nevertheless, ZAR currency fundamentals remain weak. Loadshedding remains a constant reminder of how vulnerable the South African economy is to the Eskom debacle, and the country remains without any resolution on the horizon.

South African data released last week further reinforces the bleak local economic outlook. Manufacturing production slipped by 1.3% over February, exceeding the anticipated 0.8% decline. Mining production fell by 4.9% during the month, despite analysts predicting a 2% rise. Gold production yielded a 1.7% uptick.

This week, South African inflation data for March will be released on Wednesday. We expect inflation to retract further, which follows the general global trend. Any deviation from this would result in added ZAR volatility. Overall, we look to see whether the rand can maintain its forward momentum or if the currency will give up some of its gains from the past week. South African retail sales data will also come due on Wednesday.

For global data, inflation rate data from the UK and the Eurozone will be released on Wednesday, and New Zealand’s inflation data will be released on Thursday. Unemployment rate and retail sales data for the UK will be released today, 18 April and on Friday respectively. US data will be relatively scarce.