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Rand Report: The ZAR continues to perform, but for how long?
(Partner Content) The ZAR continued its upward trend and gained significant ground against most major currencies this week – primarily due to the continued rise in risk appetite and the demand for higher yielding assets.
Rand Report. Image credit: AdobeStock.
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Tuesday saw the ZAR close at GBP/ZAR 21.26 on the back of continued rise in risk sentiment. This correlates to a stronger stock market (closed higher on Tuesday) and better than expected economic data from China (a leading driver of emerging market demand). This drove commodity prices higher during the early parts of last week and bode well for the Johannesburg Stock Exchange’s (JSE) resources sector.
Government reactions to the economic impact of the Coronavirus continues to be a key factor in the global economic environment. Until now, governments from the developed world have been forced to significantly lower interest rates and drive down their asset yields. This, in turn, has created an interesting opportunity for emerging markets (with relatively high interest rates) whose asset yields have continued to outperform their developed country counterparts. South Africa, in this regard, is no exception. The demand for higher yields has contributed significantly to a stronger ZAR over the past week.
The rand maintained its strong performance from the previous week by closing at GBP/ZAR 21.26 on Tuesday. This trend continued for most of last week as the ZAR closed at 21.09 to the pound on Friday. The coming week may see some volatility as important data is released. Later today (Tuesday 27 October) will see the release of unemployment and inflation data in South Africa. The Medium-Term Budget Policy Statement on Wednesday will also be a significant driver of volatility. Economists expect a large budget deficit (the largest in 14 years) due to the effects of Coronavirus and the subsequent lockdown on the local economy.
Market Event Calendar
Tuesday 27 October
- SA: Unemployment data
Wednesday 28 October
- SA: Inflation data
- SA: Medium-Term Budget Policy Statement
Thursday 29 October
- SA: M3 Money Supply and Private Sector Credit Data
- US: GDP data
Friday 30 October
- EU: GDP and inflation data
- SA: Balance of Trade
Monday 2 November
- SA: Manufacturing data
