Last week, the rand made significant gains against developed market currencies, whilst riding another wave of positive global sentiment. Emerging market currencies rallied for three consecutive days, alongside successful Covid-19 vaccination rollouts and renewed optimism about the US stimulus plan. After a partial correction on Thursday, driven by short-term dollar demand, the rand powered past the R15.00 resistance level, closing the week at R14.84 against the US dollar. The GBP/ZAR pair also traded downwards throughout the week, while emerging market equities ended in the green.
Wall Street’s optimism and risk appetite pushed US equity markets higher in all five days of trade. The S&P 500 advanced by 3.2%, alongside gains for the Dow Jones and NASDAQ. While the positive news of stimulus progression boosted risk appetite, emerging markets dipped as investors flocked towards the greenback.
It is no surprise that optimism around the stimulus bill has had a significant impact on investor sentiment. Joe Biden’s proposed stimulus package will help the US economy stay afloat through this period of low growth. However, it is still uncertain if the bill will be passed. Biden will require 60 votes from Congress to roll out his proposed relief plan. This would require support from several key opposition members.
While Joe Biden has indicated his preference to proceed with bipartisan support, he is not counting on a deal. Last week, Biden announced that the Democratic Party is proceeding with a Budget Reconciliation. This reconciliation is an alternative option that would allow Biden to pass the bill through Congress with a simple majority. With Kamila Harris’ tie-breaking vote, the budget reconciliation would allow Biden to proceed without any Republican support.
Investors will be keeping their eyes peeled for further developments, regarding both the stimulus package and the global vaccine rollout. The rand is likely to benefit from a risk-on mood in the near term, while the country prepares for a handful of local data this upcoming week. Investors will be focused on President Ramaphosa’s State of the Nation address, this Thursday, as well as mining and manufacturing production data.
The rand started this week on the back foot, as investors digested the news that the South African government has halted their vaccine rollout. This decision came after the AstraZeneca vaccine was found to be ineffective against the South African variant of the Coronavirus.
Market event calendar
Tuesday 9 February
GER: Trade Balance (Dec)
Wednesday 10 February
SA: Business Confidence Index (Jan)
CHN: Consumer Price Index (YoY) (Jan)
GER: Harmonised Index of Consumer Prices (YoY) (Jan)
UK: Bank of England’s Governor Baily Speech
Thursday 11 February
SA: State of the Nation Address
SA: Manufacturing Production Index (YoY) (Nov)