Rand hit new all-time low COVID-19

Photo: Adobe Stock

SAA and US-China trade talks impact the Rand’s movements

(Partner content) As the week progressed, the Rand saw some unusual strength.

Rand hit new all-time low COVID-19

Photo: Adobe Stock

This Rand report is brought to you by Sable International

Even though nothing too concerning occurred, the local news has been dominated by doom and gloom surrounding South Africa’s State-owned Enterprises (SOEs).

As the week came to an end, SAA employees went on strike causing many SAA flights to be grounded and cancelled. During this time, the Rand strengthened, contrary to what one would expect to happen considering investor sentiment. One possible reason for the resilience of the ZAR could stem from global factors, mainly the US-China trade war. According to the main US negotiator, they are “in the final stages” of solidifying a “phase one” trade deal. This has led to a risk-on mentality by many investors, resulting in the main US stock indices reaching all-time highs and money flowing into more risky asset classes such as the emerging markets. Although we have heard this kind of news on the trade talks before, it does seem like this could be the real deal and investors are committing to a positive risk sentiment approach at present.

In the UK, Brexit is still ongoing, with the elections fast approaching. This will undoubtedly result in some volatility in the market over the next month. Over the past week the UK GDP dipped below expectations, which added to the perceived ZAR strength. The GDP data release was followed by disappointing inflation and production data, further dampening sentiment in the UK economy as Brexit keeps dragging on. On the flip side, both the US and EU have reported improved production and growth data, further emphasising the disappointing UK performance.

As the new week began, the Rand weakened by about a percent against most major currencies as investor sentiment turned against the economy and the troubles with the SOEs continued. On the data front, we have local inflation data on Wednesday and the South African interest rate decision on Thursday. Inflation is expected to increase slightly, while the interest rate is expected to be kept stable. 

Globally, the US-China trade war will be one of the major catalysts in foreign exchange flows and should be monitored closely over the coming weeks. Data wise, there isn’t much on the global horizon, so overall it is advised that traders do not overcommit to any directional trade and maintain a risk neutral approach in the market. Once we see some concrete developments in this trade war debacle one can make an informed decision as to where the market is going.

Market event calendar

Wednesday 20 November

  • South African inflation data
  • Chinese inflation data

Thursday 21 November

  • South African interest rate decision
  • ECB monetary policy meeting

Friday 22 November

  • EU manufacturing and services PMI

-Sebastian Steyn