Rand Report: Rand recovery following overshooting pricing action

The ZAR added to its recent recovery against major currency counterparts. This appears to be the result of a correction in overshooting price action. The recent trend reversal comes after a tumultuous start to the year for the Rand, where the emerging market currency weakened across the board.

Last week, the South African interest rate decision was released. The South African Reserve Bank opted to raise their benchmark repo rate by 50 basis points (bps), from 7.25% to 7.75%. This figure exceeded the expected 25 bps rise, providing additional support to the previously faltering Rand.

Balance of trade data was also released from South Africa, where there was a significant improvement in the country’s trade balance position. The previously recorded trade deficit of R22.7 billion was erased and a trade surplus of R16.1 billion was recorded. This move largely exceeded expectations and was the result of an export surge of 10.7%. This export boost was especially prevalent in vehicles and transport equipment, as well as machinery and electronics. 

The Dollar Index (DXY) declined by 0.59% last week, adding to previous losses. After opening at 103.11 and falling to a low of 102.05, the DXY ended at 102.51 on Friday. This decline can be attributed to sensitivity in the US banking environment and added Fed caution relating to future interest rate hikes. There was also a diversion between the greenback and global oil prices. The USD/ZAR pair experienced a significant movement, depreciating by 2.07% and closing at R17.78 on Friday.

The British Pound had a solid performance in the forex markets last week, as fears of a recession appear to soften. The sterling gained a further 0.84% against the US Dollar and picked up 0.11% on the Euro. Nevertheless, the GBP/ZAR pair moved 1.25% lower, breaking through the R22.00 support level and ending at R21.92. 

The Euro performed relatively well last week, thanks to cooling inflation and optimistic German business confidence. Eurozone inflation data was released last week, indicating a decline in the inflation rate to 6.9% in March. This reading comes after the prior month’s 8.5% inflation print and exceeds the anticipated decline to 7.4%. The unemployment rate for February was also released, coming in alongside expectations at 6.6%.

The USD/EUR pair declined by 0.73%. However, the common currency shed 0.11% of its value against the Pound. Furthermore, recent ZAR tailwinds was enough to overpower the EUR. After declining by 1.35% from an open of R19.55, the EUR/ZAR pair ended the week around R19.28. 

What to look forward to this week

This week will be light on local data. Market participants will look to global for any signs of changing capital market expectations.

Nonfarm payrolls data will be released on Friday, along with the March US unemployment rate. Nonfarm payroll data is expected to show an additional 250,000 jobs added to the US economy, after February’s 311,000 figure. The unemployment rate is expected to come in at 3.5%, down from the previous 3.6% reading. Additionally, balance of trade data will be released on Wednesday, along with manufacturing and non-manufacturing PMI.

Furthermore, there will be central bank interest rate decisions out of Australia and New Zealand. These monetary policy events will likely have an impact on the AUD and NZD. There will be little noteworthy data released from the UK and Eurozone this week. Nevertheless, manufacturing PMI and services PMI data will come due from both regions.

Upcoming market events 

Tuesday 4 April

AUD: RBA interest rate decision

USD: JOLTs job openings (February)

Wednesday 5 April

USD: Balance of trade (February)

USD: ISM manufacturing PMI (March)

NZD: RBNZ interest rate decision

GBP: Services PMI (March)

EUR: Services PMI (March)

Thursday 6 April

AUD: Balance of trade (February)

Friday 7 April 

USD: Nonfarm payrolls (March)

USD: Unemployment rate (March)

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