Last week, the South African Rand experienced a significant drop of about 2% on Monday. This was driven by global investors seeking safer assets amid growing fears of a potential US recession, following a rise in unemployment to 4.3% according to recent US payroll data. It is widely anticipated that the US Federal Reserve will cut interest rates in September to counteract the looming recession in the world's largest economy. Lower interest rates in major currencies typically correct overvalued currencies, and the Rand, like other risk-sensitive currencies, is influenced by global factors such as US economic data and monetary policy, as well as local conditions.
On Monday evening, US central banks countered recession fears by indicating that a rate cut would be necessary to prevent such an outcome. This led to a rebound for the Rand, which closed at R18.34 against the Dollar on Wednesday, recovering from a peak of R18.68 during Monday's trading hours. The Rand stabilised on Thursday due to lower-than-expected jobless claims in the US, suggesting the Dollar was not as weak as previously thought.
By the end of the week, the Rand closed at R18.30 against the Dollar and continued to strengthen, reaching R18.20 on Monday. This gain is attributed to investors focusing on a data-heavy week and exercising caution with USD holdings. Local mining and unemployment data, set to be released today, could influence the Rand's movement. While there are optimistic views on the Rand's long-term prospects, investors should remember that it is highly sensitive to developments in major economies like the US and the UK. Therefore, significant movements are expected in the coming weeks due to interest rate cuts both locally and internationally, along with the US elections.
Upcoming market events:
Tuesday, 13 August
- USD – PPI data
- GBP – Inflation rate
Wednesday,14 August
- USD – Inflation rate
- GBP – GDP growth rate
Thursday, 15 August
- USD – Retail sales
- GBP – Retail sales
Friday, 16 August
- USD – Building permits