Rand Report: Rand weakens as ANC challenges the SARB mandate. Image: Supplied

Rand Report: Rand weakens as ANC challenges the SARB mandate

The rand had a relatively poor performance last week, which can be partially attributed to local uncertainty in the banking sector.

by Sable International

10-01-2023 15:53

in Business & Finance

Rand Report: Rand weakens as ANC challenges the SARB mandate. Image: Supplied

It has been a calm start to the new year, with modest volatility in forex rates. The scarcity of significant data has left the markets without a clear direction.

A bout of USD strength during last week, ahead of Friday’s nonfarm payrolls report, allowed the Dollar to enter the green territory. Despite a trend reversal at end of the week, the Dollar Index moved 0.30% higher during the week, while the GBP/USD pair ended flat.

The rand had a relatively poor performance last week, which can be partially attributed to local uncertainty in the banking sector. The African National Congress (ANC) has called for changes in the South African Reserve Bank’s mandate, stating that employment figures should be considered as part of the interest rate hike trajectory. Considering South Africa’s outsized unemployment crisis, this would decrease the likelihood of an aggressive rate hike path. Consequently, these events have added additional weight to the Rand.

As last week’s trading rounds came to an end, the safe-haven US Dollar lost its legs. The nonfarm payroll (NFP) report, which was released on Friday, served as a catalyst. Despite an NFP figure that was in line with expectations, this data event added significant volatility to the market and provided a renewed wave of risk-on investment. US equity markets traded on the front foot, with the S&P 500 Index gaining over 2% on Friday. The greenback simultaneously shed approximately 1% in value.

Nevertheless, the emerging market ZAR was outmuscled by its developed-market counterparts. The USD/ZAR pair appreciated by 0.78% during the week. After opening at the R17.00 support level, and trading between R16.78 and R17.44, the pair ended at R17.13.

The GBP/ZAR pair experienced a similar price movement, gaining 0.73%. After starting the week at R20.58 on Monday and reaching a high of R20.76, the pair rounded off at R20.72 on Friday.

EUR/ZAR made a less pronounced move to the upside, as lower-than-expected inflation data softened projections for future European Central Bank interest rate hikes. The EUR encountered some headwinds because of this and ended up weakening against the USD and GBP. Consequently, the EUR/ZAR pair appreciated by a comparatively small 0.20%. After opening at R18.21, the pair closed at R18.24

The most significant data to be released will be the US inflation data which will be released on Thursday. The US inflation rate is expected to come in at 6.7% for December, after the 7.1% reading in the prior month. This would be the sixth consecutive month in which US inflation has ticked lower.

The UK’s most recent GDP figures will also be released on Friday, along with the balance of trade figures for the Eurozone. South African manufacturing production figures will also be released today, 10 January.