The South African rand has been hitting local lows against the USD and GBP, but this downward trend seems to be slowing. Recently, we observed the smallest weekly drop in the GBP/ZAR exchange rate since the end of April and a similar pattern in the USD/ZAR rate.
The rand is influenced by global factors like US monetary policy as well as local conditions. Often, the rand’s gains are due to a weakening Dollar. This past week, markets have been looking for clues about future US interest rates, with more Fed officials speaking and the minutes of the Fed’s last meeting being published on Wednesday. Strong indications that the US Federal Reserve will cut rates later this year have been devaluing the Dollar. However, Atlanta Fed President Raphael Bostic mentioned on Monday that it will take time for the US central bank to be confident that inflation is on track to meet the 2% goal, causing the rand to lose some momentum.
Domestically, opinion polls suggest that the ruling ANC’s majority is at risk after 30 years in power, potentially forcing it into a coalition government. The uncertainty surrounding the May election outcome could impact the rand. As the elections approach, the rand might struggle to make further gains as the market assesses what the election results mean for national coalition politics.
South Africa’s benchmark 2030 government bond strengthened, with the yield dropping seven basis points to 10.300%. On the Johannesburg Stock Exchange, both the blue-chip Top-40 index and the broader all-share index closed about 0.7% higher, indicating that the rand’s strength is due to its own growth and not just a weakening Dollar. However, we should expect more volatility in the coming week, and further slippage in the Rand is possible.
Upcoming market events
Wednesday, 22 May
- GBP: Inflation rate (CPI)
- USD: FOMC minutes
Thursday, 23 May
- USD: GDP quarterly growth rate
Friday, 24 May
- GBP: Retail sales
- USD: Durable goods orders
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