The ZAR started last week on a strong note, reaching a high of R20.37 against the Pound and R15.18 against the US Dollar. This was mainly driven by a spike in global risk sentiment due to positive data released from China, mitigating fears of an economic slowdown for the world’s second largest economy. Positive data from China usually means an increase in demand for emerging market assets and improved risk sentiment.
On Tuesday, the Dollar strengthened on the back of better-than-expected spending data ( retail sales , export prices and industrial production data ). Movement on the USD also drove strength in emerging market currencies, including the ZAR, as the local currency remained flat for most of the day.
This trend reversed on Wednesday and for the rest of the week as the Rand weakened significantly against most major currencies. This can be attributed to the dramatic fall in the value of the Turkish Lira . The Lira has been weak all year due to fiscal and monetary instability. However, its impact on other emerging market currencies has been contained for the most part. With the tightening of monetary policies from the Fed, the Bank of England and others, the impact of the unstable Lira began to spill over onto other emerging market currencies due to weaker risk sentiment.
The ZAR continued to lose strength throughout the week, despite the 25-basis point interest rate hike by the South Africa Reserve Bank. This is due to international market trends and risk sentiment having more of an impact on the Rand than local developments.
Looking at the week ahead, we can expect the ZAR to continue to be driven by risk sentiment as the loose monetary policies of larger economies come to an end.
Weekly market events
Wednesday 24 November
US: GDP growth rate
US: FOMC minutes
Thursday 25 November
Friday 26 November
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