Excess demand for the rand, partially driven by rising exports and current account surplus, has helped the rand to remain at yearly highs, while rising inflationary concerns have limited the upside of the US dollar.
South Africa recorded a current account surplus of R267.3 billion at the end of Q1 of 2021, as exports continued to outpace imports. This is the second largest current account surplus that South Africa has recorded since 1960. The surplus rose by 35%, from 197.8 billion in the previous quarter, and increased by 5% as a percentage of GDP. South Africa also recorded GDP growth of 4.6% in the first quarter of 2021, exceeding the forecasted 2.5% rise and helping to boost economic sentiment for the country.
Over in the US, the main data point from last week was the inflation print, which came in at 5% (YoY) for May. Although inflation was expected to rise, the reading was even higher than anticipated, raising concerns over “runaway inflation”, whilst the employment growth lagged. This could be troublesome for the US in the medium term, as concerns kept the dollar subdued.
However, it meant the rand was able to hold its ground against the greenback and the continued bearish trend of the USD/ZAR rate has pushed the rand to its strongest point for the year. It opened at a low of R13.40 last Monday before rising and coming to a key support level around USD/ZAR 13.70.
Coming up this week, our focus shifts to the US interest rate decision. It has remained at 0.25% for quite a while and is not expected to change anytime soon, although the increased inflation will be a cause for concern for policymakers. This should be closely monitored as the tone used in the FOMC press conference post the decision will be a potential catalyst and market-moving event.
We have South African retails sales data on Thursday, which is expected to move up by 2% in May. Next week, it will be worthwhile keeping an eye on South Africa’s Inflation rate reading for May, after inflation ticked up by 0.7% MoM during April.
Weekly market events
Tuesday 15 June
USA: Retail Sales (May)
GBP: Claimant Country Change (May)
EUR: Balance of Trade (April)
Wednesday 16 June
GBP: Inflation Rate (May)
USA: Fed Interest Rate Decision & FOMC Economic Projections
Thursday 17 June
ZAR: Retail Sales (May)
EUR: Inflation Rate (May)
Friday 18 June
GBP: Retails sales (May)