Rand Report:  Rand reversal as political confusion subsides: Image: Supplied

Rand Report:  Rand reversal as political confusion subsides

The South African rand strengthened against all the top 19 currencies we monitor in this past week. More in this week’s Rand Report.


Rand Report:  Rand reversal as political confusion subsides: Image: Supplied

Last week, the South African rand strengthened against all the top 19 currencies we monitor. After a tumultuous few weeks, the ZAR had some respite from the all-time lows it recently experienced. 

Last week, the USD/ZAR pair declined by 4.10%. After opening at R19.51 on Monday and reaching a low of R18.69, the pair ended weekly trade at R18.71. The main driver of this movement came in the form of Rand tailwinds and was supplemented by US Dollar weakness.

The EUR/ZAR pair moved 3.78% lower last week, from an open price of R20.90. The pair closed trade at R20.11, marginally above the weekly low of R20.09.

The GBP/ZAR pair depreciated by 3.21% last week. Although this move was significant, a recent wave of sterling strength helped to limit downside momentum. This is especially evident when compared with other developed-market currencies. The GBP/ZAR pair kicked off at R24.30 on Monday and found support at the R23.50 level. The pair closed at R23.52 on Friday.

Rand Graph: Supplied

The reversal in rand pricing is not too surprising, as recent ZAR weakness was mostly off the back of rumours and political mudslinging. Nevertheless, the structural issues in South Africa remain, with the burden of loadshedding not expected to find resolution any time soon. 

On the data front, South Africa narrowly avoided a technical recession, with Q1 GDP growth coming in positive at 0.4%. This reading was in line with market expectations and comes as a significant improvement from the -1.1% reading observed in Q4 of 2022. On a yearly basis, GDP growth stands at 0.2%.

The South African Rand current account status

The South African current account deficit narrowed from R155.3 billion to R66.2 billion in the first quarter of 2023, despite expectations for a rise towards R170 billion. This is the lowest current account deficit recorded in over 11 years. The current account decline was largely driven by an expansion of the country’s trade surplus, which widened substantially from R34.2 billion to R103 billion. Courtesy of the weak local currency, South African exports have become increasingly attractive in the global market.

South African manufacturing production data for April was also released last week, indicating 0.5% growth during the month. This figure exceeded the predicted 1% decline, adding to the 3.4% increase in March.  However, despite seemingly positive production data, South African business confidence index (BCI) data highlighted that this is not expected to persist. The BCI declined significantly in Q2, from 36 to 27, with manufacturing sector confidence suppressed at 17. This is the fifth consecutive decline in business confidence, bringing the index near to three-year lows. Additionally, S&P Global Purchasing Managers’ Index (PMI) fell from 49.6 to 47.9 in May, despite forecasts indicating that PMI would remain relatively constant.

This week, we look to see if the ZAR can hold onto its gains from the past week. The local political fiasco cannot be discounted, as any developments with respect to the BRICS summit and associated diplomatic immunity could trigger serious consequences from any of South Africa’s western trading partners. This would undoubtedly have an adverse impact on the rand.

There will be quite a bit of central bank action in the global market this week, which could swing the and in either direction.  The main event, the Federal Open Market Committee (FOMC) meeting, concludes on Wednesday and the US Federal Reserve will announce its interest rate decision. The market has been pricing in a pause at this meeting. In the event of the Fed raising rates, the USD will rally dramatically. The European Central Bank (ECB) will also give their updated interest rate decision this week, which we expect will be raised by 25 basis points . This has been thoroughly communicated by ECB president, Christine Lagarde.

Upcoming market events

Tuesday 13 June

USD: Inflation rate (May)

GBP: Unemployment rate (April)

GBP: Claimant count change (May)

ZAR: Gold production (April)

ZAR: Mining production (April)

Wednesday 14 June

USD: Fed interest rate decision

USD: Producer price index (May)

GBP: Gross domestic product (April)

ZAR: Retail sales (April)

Thursday 15 June

EUR: ECB interest rate decision

USD: Retail sales (May) 

Friday 16 June

EUR: Inflation rate (May)

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