The South African Rand’s recent strength has finally stalled. With minimal data coming out of South Africa last week, the ZAR has been mostly influenced by global market factors. This includes the decline in prices of precious metals, such as gold. Additionally, the “risk-off” tone of global investors has taken its toll on the ZAR.
The emerging-market Rand encountered some recent headwinds, amid heightened market volatility and continued US Dollar strength. It all came to a head when the US inflation data print came in at 0.3% (MoM), higher than the expected reading of 0.2%. This put the market on shaky feet, as a slowdown in inflation was anticipated due to the recent rise in Fed interest rates.
The USD/ZAR pair moved 0.90% higher last week, opening at R16.01 on Monday, and after touching a high of R16.29, the Rand closed at R16.15 against the greenback.
The GBP/ZAR pair followed a similar, but less pronounced movement, with the Pound gaining 0.28% on the Rand. After a very shaky round of trade in the previous week, the sterling seems to have made a reasonable comeback. The GBP/ZAR pair managed to reach a high of R20.13, from an opening of R19.76 on Monday, before experiencing a partial correction and closing the week at R19.86.
The Euro did not fare as well as its developed market counterparts, as the region remained focused on the Ukrainian conflict. Additionally, the ECB’s dovish stance on monetary policy has provided the Euro with little support. Consequently, the EUR/ZAR pair fell by 0.43% last week, from an opening of R16.90 on Monday. After touching lows at the R16.60 support level, the EUR/ZAR pair capped off the week at R16.81.
This week, we have two major local data events: the South African inflation data and the South African Reserve Bank (SARB) interest rate decision . The inflation data will be released on Wednesday and is expected to increase, alongside most global economies. The SARB interest rate decision will take place on Thursday. A 50-basis point increase is expected, in line with the US rate hikes. We will look to see what transpires and how the market reacts to it.
For global data, US retail sales data will be released on Tuesday, and is expected to increase on a month-on-month basis. This would be positive for US economic growth. Otherwise, there is no significant US data. Analysts will continue to monitor to see if the USD can maintain its hold on the top spot amongst the major currencies. The prospect of continued Fed tightening and a general “risk-off” tone in the markets have put some solid backing behind the USD.
Over in the Eurozone, both GDP growth and inflation data will be released. Both are expected to increase year-on-year but decrease quarter-on-quarter. Short-term inflation could be moderating, which is the main concern for the EU right now, but if growth also stalls this will likely have an adverse impact in the EUR.
In the UK, the inflation data will be released on Wednesday. Inflation is expected to increase to new extremes, with a level of 9.1% YoY under the consensus of economists. We end the week off with the confirmed retail sales data, which is expected to point to a downturn in the market. Additionally, unemployment data will be released, and it is expected to remain stable at 3.8%.
Upcoming market events
Tuesday 17 May
Wednesday 18 May
Thursday 19 May
Friday 20 May
GBP: Retail sales (April)
GBP: GfK consumer confidence (May)
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