Tue. Oct 22nd, 2019

Rising geopolitical risks weigh on the Rand

The Rand started the week with a recovery from last week’s lows against most major currencies.

rising geopolitical risks weigh on the rand 1024x683 - Rising geopolitical risks weigh on the Rand

This Rand report is brought to you by Sable International

At the time of writing, it was hovering around R18.63 to the Pound, up 0.5% from last week’s close. The retreat was driven by the confluence of weaker US data and some evidence of coordinated efforts to stabilise beleaguered State-Owned Enterprises like Eskom and the SABC.

The main drivers of the Rand in the week
ahead are likely to be global risk trends, the value of the US Dollar – to
which the Rand is negatively correlated – and South African manufacturing and
mining data. The manufacturing and mining data will provide clues to the growth
outlook for the third quarter. 

As an emerging market currency, the Rand tends to be sensitive to global risk appetite, falling when investor risk aversion increases and rising when risk appetite increases. The main driver of risk trends in the near-term is likely to be US-China trade talks, which are scheduled to begin on Thursday. 

77895305 2019 10 08 the rand report - Rising geopolitical risks weigh on the Rand

On the domestic data front, the main
releases for the Rand are mining production and manufacturing output on
Thursday. These could provide an insight into Q3 growth which might
influence the Rand. 

ABSA is forecasting that mining production,
which is out at 12.30, will rise slightly by 0.1% m/m sa in August. Year-on-year
growth, however, is likely to fall as a result of base effects.

While the PMI data clearly points to soft
growth momentum in Q3, analysts caution that it can sometimes diverge from
official output data.

Market
event calendar

Tuesday 8 October

  • SACCI Business Confidence Index: The BCI
    captures the sentiment of the business community. Generally, a high reading is
    seen as positive (or bullish) for the Rand, while a low reading is negative (or
    bearish).

Thursday 10 October

  • Mining
    production: In South Africa, the index of the volume of mining production is a
    statistical measure of the change in the volume of production. Coal is the most
    important sector and accounts for 24% of total mining production, followed by
    PGMs (23%; gold (16%) and iron ore (12%).
  • Manufacturing
    Production Index: The percentage changes in the Manufacturing Production Index
    captures the rate of variation in output. A high reading is seen as positive
    (or bullish) for the Rand, while a low reading is seen as negative (or
    bearish).

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