Rand Report: Lights out for the rand: Image: Adobe stock

Rand Report: Lights out for the rand

The rand had a terrible trading week after Eskom plunged the country into darkness with stage 6 loadshedding.


Rand Report: Lights out for the rand: Image: Adobe stock

The South African rand had a terrible trading week, with the currency weakening across the board. This weakness was spawned by the recent loadshedding, and further fueled by global market jitters. As a result, investment preference has turned away from the emerging-market ZAR.

The rand experienced a breakdown in momentum last week, after Eskom plunged the country into darkness with stage 6 loadshedding. With blackouts lasting up to four hours at a time, it is not surprising that market participants are viewing this as a major blow to the country’s economic recovery.

Apart from these local headwinds, global developments have also added pressure to the rand. Concerns of slowing economic growth in developed markets have caused investors to move away from risk. Last week’s data supported this, as US GDP growth contracted by 1.6% on a quarterly basis. This decline was larger than anticipated and raises alarm for the possibility of the US economy slipping into recession.

Consequently, we have seen investors move towards the safe-haven end of the investment spectrum. Yields on the US 10 YR fell sharply last week by 7.90%, as investor preference shifted away from risk. This is particularly evident in the crypto markets, with bitcoin moving another 10% lower. Additionally, the Dollar Index (DXY) powered forward, appreciating by 0.91% last week.

Rand report: Image: Supplied

This combination of local and global risk factors led the ZAR into deep losses. The USD/ZAR pair appreciated by a whopping 3.78% during the week, from an open of R15.80. After briefly breaking through the R16.50 resistance level, the pair closed at R16.40 on Friday.

GBP/ZAR followed suit, appreciating by 2.36% during the week. After beginning the weekly trade at R19.385, the pair soared higher and briefly breached the 20.0 resistance level, before experiencing a partial correction and ending at R19.83 on Friday. Furthermore, the EUR/ZAR pair moved 2.54% higher, closing the week at R17.09.

A lot of significant US data will be released this week. The FOMC minutes will be released on Wednesday, followed by balance of trade and ADP employment figures on Thursday. Additionally, nonfarm payrolls data will be released on Friday. The payroll report will be a major point to watch and will likely lead to added volatility in the market.

However, there will be minimal data released from outside of the US. The most notable events would be the speeches by various Bank of England members. The Euro Area will also be light on data this week. Nevertheless, EU retail sales data will be released on Wednesday, and is expected to show a drop on a month-on-month basis.

There will also be no noteworthy data from South Africa this week. The market will be only interested in the economic impacts of loadshedding.

Upcoming market events

Tuesday 5 July

GBP: S&P global services PMI (June)

GBP: BoE Gov Bailey speech

Wednesday 6 July

USD: FOMC minutes

USD: JOLTs job openings (May)

USD: ISM non-manufacturing PMI (June)

Thursday 7 July

USD: Balance of trade (May)

USD: ADP employment change (June)

Friday 8 July

USD: Nonfarm payrolls (June)

USD: Unemployment rate (June)

EUR: ECB Lagard speech

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