The South African rand continues its woeful performance against almost all traded currencies and has continued to be a standout underperformer. The ZAR closed last week’s trading at R18.93 to the US Dollar and R23.8 to the British Pound.
On Monday, the rand continued to slide against both the US Dollar and the Pound, reaching a high of R19.13 and R24.07 against the respective pairs. This was on the back of renewed expectations that the Federal Reserve may not cut interest rates early next year.
The rand’s subsequent recovery
The rand has subsequently recovered somewhat in early trade on Tuesday, currently trading at R18.98 to the US Dollar as investors braced for consumer inflation data coming out of the US on Wednesday, which could impact on the Federal Reserve’s interest rate plans in the medium term.
While higher rates for longer seem to be expected, traders will be watching the inflation data and Jerome Powell’s press statement after the FOMC like hawks for hints. Similarly, interest rate decisions are being determined by both the Bank of England (BoE) as well as the European Central Bank (ECB) on Thursday, which can also go some way in determining the Rand’s short- to medium-term trajectory.
Stats SA will release the country’s October mining data and manufacturing figures, which could provide some clues as to the productivity of the South African economy.
The Dollar Index (DXY)
The Dollar Index (DXY) closed trading relatively strong last week, at 103.98, which may have contributed to the rand’s woes. However, it is not a strong signal that DXY strength will continue.
Continued strength from the DXY, which could occur if the Fed keeps rates unchanged or rates have one final hike, would almost certainly spell bad news for the Rand, which is suffering from inherent weakness when compared to other emerging-market currencies.
Upcoming market events
Tuesday, 12 December
- GBP: Unemployment rate (October)
- USD: Inflation rate month-on-month (November)
Wednesday, 13 December
- GBP: GDP month-on-month (October)
- ZAR: Retail sales month-on-month (October)
- USD: PPI month-on-month (November)
- USD: Fed interest rate decision
- USD: FOMC economic projections
Thursday, 14 December
- ZAR: PPI month-on-month (November)
- GBP: BoE interest rate decision
- EU: ECB interest rate decision
- USD: Retail sales month-on-month (November)
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