Fri. Jul 19th, 2019

South African Rand defense weakened in anticipation of adverse GDP figures

rand improves dollar us jobs data cyril ramaphosa nationalisation reserve bankAnalysts say that further gains to be limited.

south african rand defense weakened in anticipation of adverse gdp figures 1024x732 - South African Rand defense weakened in anticipation of adverse GDP figures

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This Rand report is brought to you by Sable International

The Rand was resurgent last week, building on gains made after President Cyril Ramaphosa allayed market concerns over the composition of his cabinet.

Moving into the new week, the most important domestic driver of the Rand is probably the Q1 GDP growth rate, which is forecast to show an annualised -1.7%.

Although a contraction in GDP is priced in, there is still the risk of further disappointment given the tumultuous start to the year and the conservatism that fresh bouts of load shedding caused. Sentiment can be powerful and anything worse than that reading may well see the ZAR give up some of its recent gains, even though technicals favour a move back below 14.4.   

4bbc16fa rand report graph 4 june 2019 - South African Rand defense weakened in anticipation of adverse GDP figures

Another major driver for the Rand is the performance of the US Dollar to which the Rand is negatively correlated. This is due to the high degree of Dollar-denominated debt held by SA firms. When the USD rises, repayments become more burdensome.

The US Dollar is looking technically weak and there is increasing pressure on the Federal Reserve (Fed) to downgrade its growth and inflation assumptions in line with broader market views. A change in Fed stance – currently neutral – could lead to a sell-off in the Dollar and strengthening of the Rand.

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