The past week was one of big swings in both directions for the South African Rand. The main influence of this was the US national election results in which Donald Trump was re-elected as the President. We then experienced major geopolitical shifts with regards to conflicts in the Middle East and Ukraine as tensions in both places eased. Even with the news and election results, the Rand closed the week in pretty much the same spot that it opened at around R17.52 against the Dollar.
Monday opened the week with investors being careful about the election results and interest rate decisions later in the week. There was some Rand gain to close out the day which could have hinted at a potential election upset being priced into the USD. Tuesday saw more of the same as even though the local S&P Global PMI dropped to 50.6 from 51.0, showing a slowing in business activity, the Rand held resilient and claimed some ground closing at R17.37 to the Dollar. The early hours of Wednesday morning brought a major USD gain as news broke out regarding Trump’s victory. The Rand traded as high as R17.81 against the Dollar. The major news resulting from this election victory was stock markets and cryptocurrency reaching all-time highs, and both conflicts in the Middle East and Ukraine showing early signs of easing.
Couple the newfound peace agenda and improved trade conditions with the 25-bps interest rate cut by both the US Federal Reserve and the Bank of England, and we have a market that is primed for emerging currencies and riskier assets. The Rand was no different as we saw the most gains in the week made on Thursday as the USD/ZAR closed at R17.27 at the end of business. Friday reversed all these Rand gains as US Michigan Consumer Sentiment at 73.0 (vs 71.0 expected) bolstered the USD strength, ending the week with the Rand at R17.54 to the Dollar. The Rand has swung wildly since Trump's election win last week. Some analysts think that volatility could persist into January when Trump takes over as president. Potential policy changes from the US President-elect include tariffs and tax cuts. Those measures could put upward pressure on US inflation, limiting the Federal Reserve's scope to ease monetary policy and supporting the greenback.
Later this week the domestic focus will be on third-quarter unemployment numbers, September manufacturing output and September mining production. The benchmark 2030 government bond was also weaker, with the yield up 5.5 basis points to 9.225%.
Upcoming market events
Wednesday, 13 November
- USD – Inflation rate
Thursday, 14 November
- ZAR – Mining production
- USD – PPI
- USD – Fed Chair Powell speech
Friday, 15 November
- GBP – GDP growth rate
- USD – Retail sales