The South African rand had a dismal week, as higher US inflation caused a strong pivot away from the emerging-market currencies. This caused the ZAR to weaken against most major currencies. Local events also added some additional pressure to the ZAR.
Last week was unfavorable to the South African economy. Aside from the global risk-off investment sentiment, Stage 6 loadshedding was also implemented. Retail sales came in negative, as the higher cost of living leads to slower consumer consumption.
The US Dollar remained at the top of the charts, as higher-than-expected inflation cemented the fact that the Fed will be raising rates by at least another 75 basis points (bps). Consequently, the USD strengthened against 18 of the 19 currencies we monitor. The US Dollar Index also moved 0.61% higher during the week.
The US Fed was hoping that peak inflation was behind us. However, as prices continue to rise, it will be forced to raise interest rates further to try and cool the overheating economy, which explains the recent rally in the USD.
The USD/ZAR pair appreciated 1.71% during the week. After opening at R17.31 on Monday, and trading in a band between R17.00 – R17.70, the pair closed off at R17.60.
The EUR/ZAR pair experienced similar movement, rising by 1.47% during the week’s trade. The pair closed on Friday at R17.62, from an open of R17.38 on Monday.
GBP/ZAR was unable to muster up the same momentum, with the pair gaining a minor 0.18%. The pair closed trade at R20.08, from an open of R20.06.
Coming up this week, we look to see if this loadshedding debacle continues to drag on the ZAR. On the data front, South African inflation data will be released on Wednesday. Inflation is expected to tick upwards, in line with the global trend.
On Thursday, the South African Reserve Bank (SARB) will release its interest rate decision. We expect the SARB to hike rates by 75 bps. If they raise interest rates less than expected, the ZAR could weaken drastically. The currency will also be influenced by the decision of the US Fed on Wednesday.
In the global arena, all eyes will be on the US Federal Open Market Committee meeting and the Fed interest rate decision. Markets are anticipating anything from 75 bps to a 100-bps hike. If the latter occurs, we expect the USD to remain elevated for the foreseeable future. The market will be moved by this event, so we eagerly anticipate the outcome.
On Thursday, the Bank of England (BoE) will release its interest rate decision. The BoE is expected to maintain its usual stance and raise rates by 50 bps. Any deviation from this would result in added volatility in the currency.
Upcoming market events
Wednesday 21 September
USD: Fed interest rate decision
USD: Existing home sales (August)
ZAR: Inflation rate (August)
Thursday 22 September
GBP: BoE interest rate decision
ZAR: Interest rate decision
Friday 23 September
GBP: GfK Consumer Confidence (September)
EUR: Manufacturing PMI (September)
EUR: Services PMI (September)
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