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Weak USD and Strong Gold Boosts ZAR

Published 2024/04/09, 15:39

Over the past week, the South African Rand (ZAR) increased significantly against both the USD and the British Pound (GBP). The currency was mostly driven by a weaker USD and a robust gold price. Local data was muted and nothing significant happened on the local front. Meaning that the Rand movement was influenced by international affairs.

Additionally, the USD weakened for most of the previous week. The main driver of the USD has been speculation on their potential rate cut, scheduled for June. The market appears to be expecting three rate cuts for this year.

However, the US economy still appears to be strong, which has luckily not reflected in inflation yet. Going forward the Federal Reserve will keep a close eye on labour data and spending. On the other side of the Atlantic, the GBP has also been losing ground due to the same dynamics. Markets expect the Bank of England to cut rates a bit later this year as opposed to the US. However, inflation still appears to be high in the UK and may dampen the number of cuts to be expected.

The commodities have been another major driver for ZAR. Gold has broken all-time highs of $2,300 per ounce and has continued to rise. There are multiple factors driving the gold price. The most prominent of which is the “safe haven” narrative. Gold has become a more attractive asset due to the weakening of major currencies such as the USD and GBP. The uncertainty in the geopolitical landscape (wars in Ukraine and Gaza) also continues to act as demand side tailwinds.

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