Thu. Nov 21st, 2019

Risk-on sentiment buoys the Rand

Over the past week we have seen some solid performance from the Rand.

risk on sentiment buoys the rand 1024x683 - Risk-on sentiment buoys the Rand

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A week ago, the Rand was trading at R18.29 against the Pound and R14.35 against the US Dollar. We are now in a whole different realm, trading at R17.86 against the Pound and R14.12 against the US Dollar. Most of the strength we have seen is related to Pound weakness.

There has been a lot
of talk about the US Fed cutting rates in the short-to-medium term. Last week, Jerome
Powell, Chair of the Federal Reserve Bank, put a damper on the bullish
sentiment, saying that aggressive easing would be pertinent. This temporarily
lowered the prospect of renewed growth in the market.

This past week saw multiple data points from all around the world, with the UK releasing inflation reports, growth data and manufacturing data. None of these surprised on the upside, so there was nothing exceptionally positive to the Pound.

5e12b830 the rand report graph 2019 07 02 1 - Risk-on sentiment buoys the Rand

In the US, the growth,
manufacturing and expenditure data was mixed overall, with the most important
one, the GDP growth, coming up in line with expectations. This left the US Dollar
with no real direction.

The week ended with
the G20 meeting. This is where the bullish sentiment towards the world economy
and the Rand came into its own. China and the US agreed to put their past
grievances aside and come back to the table to try and get past the trade war
and its impact on the world economy. Saudi Arabia and Russia have agreed to cooperate
on oil production matters. Overall, these factors led to a market rally as soon
as the markets opened on Monday, with most indices seeing a 1-2% jump as they
opened.

In the week ahead, we will need to watch if renewed risk-on sentiment remains in the market or if this was more a case of “buy the rumour sell the fact”. This week doesn’t have all that much happening on the data front. With the US Independence Day on Thursday, we can expect liquidity in the market to dry up as the week draws to a close. This rally in the market should be closely monitored and not seen as a full-on relief rally as it could run out of steam soon.

Market event calendar

Tuesday 2 July

  • Australian interest rate decision: A cut should weaken the
    AUD and would be AUD negative.

Wednesday 3 July

  • US Non-Manufacturing PMI: This is expected to remain above
    50, which is bullish for the USD.

Thursday 4 July

  • US Independence Day: This will result in thin liquidity in
    the market.

Friday 5 July

  • US Nonfarm Payrolls: Expected to increase, this is bullish for the USD.

Sebastian Steyn

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