Rand Report: Rand in the deep end as the economy drowns: Image: Adobe Stock

Rand Report: Rand in the deep end as the economy drowns

The Rand had yet another tough time in the forex markets last week, as local conditions continue to pressure the emerging-market currency.

by Sable International

23-03-2023 11:55

in Business & Finance

Rand Report: Rand in the deep end as the economy drowns: Image: Adobe Stock

The South African rand had yet another tough time in the forex markets last week, as prevailing local conditions continue to put pressure on the emerging-market currency.

On the bright side, South Africans have been able to enjoy a brief break from the relentless Eskom blackouts. However, it should be noted that this break is the result of the Economic Freedom Fighters’ (EFF’s) national shutdown, a political protest aimed at the ANC and Cyril Ramaphosa. The EFF took to the streets to express their frustration with the government’s performance.

South African industries are now starting to feel the full brunt of the Eskom crisis, with production numbers declining even further. Manufacturing production declined by 3.7% in January, adding on to the 4.05% reduction in December. Mining production also moved lower, slipping by another 1.7% after the 3.6% decline in December. Gold production managed to increase by 3.7%, after the 3.3% dip in the prior month.

South African building permits, a leading indicator of economic activity, plunged by a staggering 40.4% in January. This figure far exceeded the expected decline of 15% and puts building permits at a two-year low. Consumers are also feeling the effects of the stagnating economy. Retail sales shrank by 0.8% (YoY) in January, adding to the 0.5% dip in the prior month.

The United States inflation data

In the US, February’s inflation print data was released. The US inflation rate came in at 6%, declining from the 6.4% reading in January, bringing inflation closer to an appropriate baseline.

Although this was the lowest inflation recorded since September 2021, US price pressure remains elevated. It is likely that there will still be a significant uptick in Fed interest rates before an acceptable price level is attained. Producer price index data also declined by 0.1% over the month, despite an expected rise of 0.4%.

In the Eurozone, the EU inflation rate for February was released. European inflation came in at 8.5%, a slight downtick from the 8.6% reading in January. Furthermore, the European Central Bank (ECB) released its interest rate decision. The ECB opted to raise interest rates by 50 basis points, from 3.0% to 3.5%. This was in line with expectations, and forms part of the central bank’s attempt to curb persistent price pressure.

In the UK, unemployment came in at 3.7% for February. This figure is in line with the previous reading and exceeded an expected uptick back to 3.8%. The claimant count also declined, with 11,200 fewer people claiming unemployment benefits.

Over the past few weeks, there has been a consistent decline in the US 10-year bond yield. Yields fell by 7.20% last week, adding to the decline from the previous week. This sharp decline has come after the collapse of Silicon Valley Bank, along with banking stability concerns relating to Credit Suisse. The fear of a broader contagion effect led markets towards gold and cryptocurrency, as investors seek out alternatives to the current banking system. Consequently, the US Dollar ended the week in the red, with The Dollar Index (DXY) depreciating by 0.83%. The US Dollar shed 1.22% against the Pound and 0.22% against the Euro.

The Rand and other currencies

Despite the recent greenback weakness, the rand ended on the back foot against all major currency rivals. The USD/ZAR pair appreciated by 0.90% last week, rising from an open of R18.34 and reaching a high of R18.50. The pair rounded off the weekly trade at the R18.46 level.

The EUR/ZAR pair also climbed, gaining 1.12% during the week. After kicking the week off at R19.50 and topping out at R19.72, the pair closed at R19.70.