Volatile week for the Rand amid ratings concern
It has been a particularly volatile week for the Rand. The first week of December saw the currency strengthen against its major international counterparts. This trend continued until Thursday, when the ECB’s policy announcement caused waves in the market, weakening all currencies against the EUR.
The week ended with an avalanche of data – including the US non-farm payroll data and the SA rating review by S&P and Finch – causing mass confusion in the markets. While there was no set direction, the slightly negative stance by S&P did not favour the Rand.
The rating agencies have subsequently pointed out that the South African government should rally and make definitive steps to curb wasteful spending and focus on stimulating growth in the economy. The required growth will be even more difficult to achieve, due to the drop in metal prices – one of South Africa’s main industries – and the general slowdown in the world economy. Getting the local economy back on track will be no easy task, but it will be needed to reverse the negative outlook the rating agencies placed on the country.
We expect further volatility in the new week, following expected local data releases. As the week draws to a close, there will also be additional UK data in the form of their interest rate decision; this will be a major market mover.
What to look out for this week? How the market reacts to South Africa’s updated ratings. The thoughts of a possible interest rate hike in the US.
