This week, two significant events occurred. Firstly, US inflation data came in higher than expected, delaying the anticipated rate cut from July to September, which in turn strengthened the US Dollar against major currencies. Additionally, favourable local mining and manufacturing data contributed to the South African rand’s (ZAR) upward momentum.
Last week, the South African Reserve Bank (SARB) released positive data on South African foreign exchange reserves. This strengthens the SARB’s monetary policy and supports the ZAR’s strength over the long term. This was followed by a report on Thursday showing a 9.9% increase in mining production, a significant improvement from the 2.8% decrease reported last year, which, along with international developments, bolstered the local currency.
On Wednesday, US inflation data was released, showing a 0.4% increase instead of the 0.3% expected, with slight rises in both the CPI and core inflation. This resulted in a stronger USD as markets now expect the US Federal Reserve to maintain higher interest rates for a longer period, likely postponing rate cuts until September. This scenario is favourable for emerging market currencies, including the ZAR.
Looking ahead, the USD is likely to remain strong if the US economy continues to perform better than anticipated, and if US rate cuts are further delayed. This could enhance risk-on sentiment and improve prospects for emerging market currencies like the ZAR. Additionally, upcoming local data releases, notably South African inflation data, will be crucial in the coming week.
Upcoming market events
Tuesday, 16 April
- GBP: Unemployment rate
- EU: Union balance of trade
Wednesday, 17 April
- GBP: Inflation rate
- ZAR: Inflation rate
- EU: Inflation rate
- ZAR: Retail sales
Thursday, 18 April
- USD: Initial jobless claims
Friday, 19 April
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