Rand Report: Rand slumps as growth slows: Image: Supplied

Rand Report: Rand slumps as growth slows

The Rand lost its grip on recent gains and extended its move into the red. The recent weakness can be attributed to damp growth prospects


Rand Report: Rand slumps as growth slows: Image: Supplied

The South African rand lost its grip on recent gains and extended its move into the red. Recent weakness in the ZAR can be attributed to damp growth prospects, with investors requiring higher premiums for South African assets. 

The weak local growth environment has been further reinforced by recent economic data. South Africa’s S&P global PMI fell to 49.7 in March, down from 50.5 in the previous month. The economy has cooled alongside a reduction in private sector investment, with inflationary pressures continuing to drive down demand. Higher fuelling costs and power supply constraints have contributed to this slowdown.

Manufacturing production declined by 1.3% in February. This marks the fourth month in a row that South African industrial production contracted, with rolling blackouts adding heavy weight to supply-chain operations.

With the South African economy operating far below its once highly — touted potential, investors have turned their gaze elsewhere in search of higher risk-adjusted returns. Consequently, the Rand has felt the heat.

The GBP/ZAR pair experienced the most notable uptick last week, rising by 2.99%. After kicking off at R21.93 on Monday and reaching a weekly high of R22.78, the pair ended trade at R22.58.

Rand Graph: Image: Supplied

EUR/ZAR found itself in a similar state, moving up by 2.88% from an open of R19.30. The pair stopped short of the 20.00 resistance level, with a weekly max of R19.96 before closing at R19.82 on Friday.

The USD/ZAR pair appreciated by a significant 2.33% last week, rising from an open of R17.76, topping out at R18.32, and wrapping up the week around the R18.20 level. 

The Rand and United States Dollar pair

This recent rise in the USD/ZAR pair comes despite the recent bout of US Dollar weakness. Greenback softness arose ahead of the US nonfarm payrolls report, which was released last Friday. Markets anticipated an overall cooling in the US labour market, which would put pressure on the Fed to delay further rate hikes. The US jobs data came in slightly below expectations, with a recorded figure of 236,000. This reading came in significantly lower than the previous 326,000 figure. 

Furthermore, ISM non-manufacturing PMI data declined sharply in March, from 55.1 to 51.2. Although a minor downtick was anticipated, the actual reading indicates a significant drop in leading expectations for economic growth. This data put further pressure on the Dollar. 

The Dollar Index (DXY) declined by 0.40% last week, shedding 0.65% and 0.54% against the GBP and EUR respectively.

The ZAR experienced its least notable movement against the AUD, with the AUD/ZAR pair appreciating 2.07%. Rand weakness was partially offset by the Reserve Bank of Australia’s decision to hold interest rates constant, leading to AUD headwinds.

Upcoming market events

Wednesday, 12 April

USD: Inflation rate (March)

USD: FOMC minutes

ZAR: SACCI business confidence (February)

Thursday, 13 April

USD: Producer price index (March)

GBP: Gross domestic product (February)

GBP: Industrial production (February)

EUR: Industrial production (February)

AUD: Unemployment rate (March)

ZAR: Mining production (February)

ZAR: Gold production (February)

Friday, 14 April

USD: Retail sales (March)

USD: Industrial production (March)

NZD: Business PMI (March)

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