Sterling slips as dollar bounces after inflation sell-off: Image: Adobe stock

The Rand Report: Rand crumbles amidst Dollar strength

The South African rand had a terrible week last week, and lost value against all the currencies we monitor.

by Sable International

23-08-2022 16:15

in Business & Finance

Sterling slips as dollar bounces after inflation sell-off: Image: Adobe stock

The South African rand had a terrible week and lost value against all the currencies we monitor. The ZAR gave up all its recent gains, most significantly against the USD (-4.75%) and the Indian Rupee (INR -4.32%).

The weakness in the South African rand could in part be attributed to the pivot of the USD away from emerging market currencies, as well as political turbulence at home. There are some allegations of sexual harassment against the current Finance Minister Godongwana, which inevitably results in market jitters that happen when the finance ministry is involved. The same occurred when previous Finance Ministers were fired, and the ZAR weakened by 10%+ in a matter of days. However, we don’t expect the ZAR to have such a pronounced move in this instance.

For global data, there was a surprisingly small amount of data from the US. The USD surged in value after comments from the Federal Open Market Committee (FOMC) minutes reiterated the resolve of the US Fed to keep its rate-hiking cycle going full steam ahead. The effect of these notes from the FOMC meeting was exacerbated by various Fed officials confirming their resolve to hike rates by 75 basis points in the next meeting. We should note that, although this is the current view of the market, the Fed also maintains a stance of being nimble, and will easily adjust given new data. Thus, the USD rally should be cautiously watched, since the current technical recession in the US, coupled with inflation seeming to be coming off its peak, could lead to the Fed being less aggressive in its rate-hiking cycle going forward.

From the UK last week, year-on-year inflation hit double digits for July and there was a staggering 10.1% increase in prices from a year ago. Month-on-month inflation came in at 0.3%, slightly lower than last month, but still not pointing to any respite for UK consumers. As a slight positive, the month-on-month UK retail sales for July came in positive, so there is still growth in spending, which is needed to keep the economy going.

This week, there are a few important events to look out for. The first is the South African unemployment rate, which will be released on Tuesday. Unemployment is sitting at 34.5% but is expected to increase slightly. The South African inflation data will be released on Wednesday. We expect it to increase, in line with global trends, as the lower energy prices have not yet been passed on to the consumer. This heightened inflation environment might lead the South African Reserve Bank to raise interest rates once again to bring inflation down to within its 6% threshold. On Thursday, the South African PPI data will be released and is expected to increase by a staggering 17.65% (YoY). PPI is a leading indicator of CPI, and this does not bode well for the consumer.