Wed. May 27th, 2020

A financial and emotional roller-coaster: The Rand against the ropes

South African Rand , currency, moneyInvestors are once again wondering which way is up due to the recent domestic political developments and a floundering economy.

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This Rand report is brought to you by Sable International

Last week saw the release of the first quarter Gross Domestic Product (GDP) figures, which showed that the country’s economy shrunk by 3.2%. This was the largest contraction since the financial crisis of 2008.

This news, mixed with uncertainty in the
selection of South Africa’s cabinet, a credit rating downgrade for Eskom from
B- to CCC+ and overall economic weakness is a perfect recipe for the outcome
that took place where major currency pairs hit new highs at R19.265 GBP/ZAR; R15.1646
USD/ZAR and R17.075 EUR/ZAR.

The new week has found the Rand on more equal footing as these extravagant outcomes have now been priced into the market. The medium- to long-term outlook is still trading in between the usual range-bound forecasts between R19 and R18.20 against the Pound. From an economic standpoint, there aren’t a lot of South African data releases that can affect the rate this week so any fluctuations can be attributed to political unease or corresponding foreign exchange data releases.

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In international news, the race to be the
new UK prime minister has kicked off with Boris Johnson, Andrea Leadsom and
Jeremy Hunt leading the pack. The upcoming selection process will yield results
that are imperative to how the ZAR will react to the Pound.

Monday saw the GBP/ZAR rate drop 1.55% as the UK released manufacturing and industrial production figures which came in much lower than expected at -3.9% and -2.7% respectively for the month of April.

Tuesday sees the biggest data release from
the UK for the week as the ILO unemployment statistics will be released. The
consensus is that they will increase to 3.9% from 3.8%, which will be the first
increase in the rate in 18 months.

Market event calendar

11 June

  • South Africa Manufacturing
    Production YOU APR: Is expected to rise amidst a negative GDP, showing relative
    strength in manufacturing sector.

12 June

  • Consumer Price Index for China:
    Is expected to rise, along with inflation during the US-China tariff war.

13 June

  • South African gold production: Forecasted
    to decrease by 14.3% as every month sees another mine close.

14 June

  • Bank of England to deliver speech: Interest rate for the UK to be discussed.

Andre Pheiffer

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