ZAR Weakness as Investors Seek the Safety of the US Dollar

  • Market Overview

The South African Rand has been under enormous pressure this week, slipping from a low of R18.86 to the Dollar to a high of R19.33 in today’s trading. A similar, but less dramatic, weakness has been observed against the British Pound, sliding from a low in the GBP/ZAR pair of R23.01 to a high today of R23.32.

The strength of the USD has been notable, crushing emerging currencies and established currencies alike. This has been evident in the Dollar Index (DXY) strength breaking above previous resistance of 105.8 to reach a high of 107.2 in today’s trading session. Over the past week, there has been a massive strength in the Dollar as risk-off investors flee to the safety of the Dollar during uncertain times. This has translated to the Dollar gaining ground against 16 of the top 19 currencies we monitor.

In addition to a surging Dollar, the Rand has been hit on several fronts. Data from a local purchasing managers' survey that showed that factory activity shrank for the eighth month in a row, while bond yields are spiking across the board compounding the Rand’s woes as foreign currency treasury yields gain competitiveness.

Additionally, equity markets have been struggling, with the S&P 500 encountering its first major correction in several months as investors flee to safety. Interestingly the Nasdaq index’s correction has been relatively tame during the recent risk-off period – a surprise given its higher beta and tendency for higher volatility to both sides. The J200, South Africa’s top 40 index, followed foreign equities movements to the downside as investors continue to exercise a risk-off stance, with the correlation further causing Rand weakness.

Looking forward to potential volatility inducing events this week – Tuesday we have the JOLTS job openings data in the USA bringing potential volatility with an expected decrease to 8.6 million from 8.8 million in the previous period which can be regarded as negative to the USD. The biggest event this week falls on Friday where the US nonfarm payrolls (NFP) data will be released, along with unemployment figures. The US NFP data is expected to show a decrease to 150,000 from a reading of 187,000, demonstrating a slowdown in the US job market. The US unemployment rate is expected to remain unchanged at 3.8%.

Upcoming market events

Tuesday, 3 October

Wednesday, 4 October

  • ZAR: South African S&P Global PMI (September)
  • USD: ISM services PMI (September)

Thursday, 5 October

Friday, 6 October

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