Last week, the South African Rand faced significant challenges and failed to regain its strength. The persistent loadshedding and grid collapse concerns continue to cast a shadow over the currency. The aftermath of allegations surrounding the sale of weapons to Russia added to the woes, as both the US and South African governments remained silent on the matter. Consequently, confidence in the country remained subdued and its currency took a severe hit.
On the economic front, there was a fresh round of South African labour market data. The unemployment rate for Q1 rose from 32.7% to 32.9%, despite an expected decline to 32.5%. The number of individuals without employment increased by 179,000 and now sits at a sizeable 7.9 million.
The expanded definition of unemployment, which includes those discouraged from seeking work, came in at 42.4% in Q1. The youth unemployment rate, measuring jobseekers between 15 and 24 years old, rose to a whopping 62.1% in Q1, up from 61% in the previous three-month period.
South African retail sales growth contracted by 0.7% over the month of March, exceeding the anticipated negative reading. Retail sales are down by 1.6% on a year-on-year basis. The sluggish unemployment data, coupled with negative retail sales figures, exerted a negative influence on the Rand. To cap off a challenging week, the ZAR closed at its weakest value in history against both the USD and GBP.
The USD/ZAR pair increased by 1.40% last week, adding to the colossal gains from the prior period. After kicking off at R19.15 on Monday, and briefly flirting with the R19.00 support line, the pair was unable to move lower. The USD/ZAR ascended to a high of R19.52, before closing the week at R19.42.
The GBP/ZAR pair experienced a similar move to the upside, ending 1.25% higher. The pair opened at R23.86, soared through the R24.00 resistance level, and peaked at R24.26. The pair ended weekly trade at R24.16.
The EUR/ZAR experienced a less pronounced move to the upside, with a gain of 0.47%. The pair moved from an open price of R20.99 and ended at R21.09.
The upcoming South African Reserve Bank (SARB) interest rate decision is scheduled for Thursday. While the market is expecting an official 25 basis-point (bps) increase, there is widespread speculation that the SARB will opt for a more substantial 50 bps hike. This hawkish move would help to stabilise the spiralling ZAR. However, anything less than the projected 25 bps increase is likely to result in significant further weakness for the Rand.
Adding to the anticipation, South African inflation data is due on Wednesday, and local economists are hoping to see a slight easing in price pressure. However, if inflation shows an unexpected rise, it may force the SARB to adopt a more aggressive stance on rate hikes.
Alongside these domestic factors, the ZAR will also be influenced by any developments in the ongoing US debt ceiling talks. Any developments, or lack thereof, are poised to significantly impact the global financial market. On Wednesday, attention will be on the release of the Federal Open Market Committee meeting minutes, where the Fed Reserve’s stance may indicate that it has reached the pinnacle of its rate-hike cycle.
It's crucial to monitor these key events this week and their potential impact on the trajectory of the South African currency.
Upcoming market events
Wednesday 24 May
- USD: FOMC minutes
- GBP: Inflation rate (April)
- NZD: RNBZ interest rate decision
- ZAR: Inflation rate (April)
Thursday 25 May
- ZAR: Interest rate decision
- ZAR: Producer price index (April)
Friday 26 May
- GBP: Retail sales (April)
- USD: Personal income (April)
- USD: Personal spending (April)
- AUD: Preliminary retail sales (April)