Rand Report: Rand Softens as Major Central Banks Raise Rates
The South African Rand remained subdued in the forex markets, with poor economic conditions preventing the ZAR from gathering any sustained momentum. With a lack of significant local data, global market influences moved South Africa’s emerging-market currency.
Last week was rich with global economic data. Over in the United States, the Fed opted to raise interest rates by 25 basis points (bps), from 4.50% to 4.75%. Although this was in line with expectations, the rate hike likely added tailwinds to the US Dollar.
The US nonfarm payrolls report was also released last week. The report stated that 517,000 new jobs were added to the US economy in January. This was well above the anticipated 185,000 figure and adds onto the 260,000 jobs added in December. Additionally, the US unemployment rate declined to 3.4%, from a previous 3.5% reading, despite an expected uptick back to 3.6%.
This recent labour market data has added positive sentiment to the health of the US economy, reducing the likelihood of a US recession, and further supports the prospect of a “soft landing”. Consequently, the US Dollar yielded a positive market performance, with the Dollar Index (DXY) appreciating by 0.97%. The greenback was able to gain 0.68% against the Euro , as well as a whopping 2.79% against the British Pound .
Over in the Eurozone, we had the European Central Bank (ECB) interest rate decision . The ECB opted to raise interest rates by a comparatively aggressive 50 bps, from 2.5% to 3.0%. Additionally, Q4 GDP growth figures were released from the Eurozone and GDP expanded by 1.9% on a year-on-year basis. This data was marginally higher than the anticipated 1.8% expansion, adding to the 2.3% growth recorded in Q3. Furthermore, labour market data indicated that the unemployment rate remained at 6.6% in December.
Over in the UK, we had the Bank of England’s (BoE) interest rate decision . The BoE also opted to raise rates by 50 bps, from 3.5% to 4.0%. However, this was insufficient to prevent a significant dip in the Pound sterling. This can be largely attributed to recessionary fears in the UK, as the region’s economic health remains in question. Although a rise in interest rates usually leads to strength in the local currency, this was not the case here. Markets appear to be concerned that the BoE is taking an inappropriately hawkish view on monetary policy and may be underestimating the economic impact of raising interest rates prematurely.
The only noteworthy data from South Africa was the balance of trade. South Africa’s trade surplus exceeded expectations by narrowing from R7.3 billion to R5.43 billion. This data further explains recent ZAR weakness, as imports have managed to outpace exports by a considerable margin. Exports slumped by 5.1% due to reduced shipment of metals, machinery, electronics, and chemical products.
The South African Rand had a mixed performance in the markets last week. The emerging-market ZAR faltered against a solid greenback, and the USD/ZAR pair appreciated by 1.59%. After opening the week at R17.20 and topping out at R17.50, the pair ended at R17.46 on Friday.
The Rand also lost some ground against the Euro, with the EUR/ZAR pair moving 0.89% higher from an open of R18.70. After briefly flirting with the R19.00 resistance level, the pair closed the week at R18.85
However, the Rand was able to recoup some gains against the Pound, as the sterling suffers from recessionary concerns. Consequently, the GBP/ZAR pair declined by 1.25%. After kicking the week off at R21.32, the pair traded in a wide band between R20.82 and R21.56. On Friday, GBP/ZAR finished the weekly trade at R21.05.
Upcoming market events
Tuesday 7 February
AUD: RBA interest rate decision
AUD: Balance of trade (December)
USD: Balance of trade (December)
Wednesday 8 February
ZAR: SACCI business confidence
Thursday 9 February
ZAR: State of the Nation address
ZAR: Mining production (December)
ZAR: Gold production (December)
ZAR: Manufacturing production (December)
Friday 10 February
GBP: GDP Growth rate (Q4)
GBP: Balance of trade
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