Rand Report: Weak Dollar gives Rand a temporary boost

A continued rise in commodity prices as well as a weaker USD seem to have been behind this trend for most of the week.

On Tuesday, the ZAR shook off its week-long losing streak as it posted significant gains against major currencies. This comes amid the easing of tensions between the US and China, which in turn, has gone a long way to improve sentiment on emerging markets. The ZAR closed at GBP/ZAR R22.80 for the day after coming off of a high of R23.12. 

Weak local data in South Africa on the other hand, specifically manufacturing data, continued to place a cap on the ZAR strength. This exacerbated the fears of a deep recession as the effects of the COVID-19 pandemic are being felt. The fact that Eskom initiated power cuts on Thursday and Friday contributed to lacklustre ZAR sentiment. 

Image provided by Sable International

Stronger commodity prices also drove emerging market economies during the early parts of the previous week. It is worth noting that the gold price, even though it came off the previous week’s record highs, remained very strong. South Africa, which is a significant exporter of this commodity, consequently recorded significant gains for its resources sector. This propped up the local currency. 

The high commodity prices, along with positive sentiment and a weak USD, drove the ZAR higher, while weak local economic data and impending power cuts in the country placed a cap on gains. This is evident in the fact that for most of the week, the ZAR ranged between GBP/ZAR R22.90 and GBP/ZAR R22.72. A recovery in the USD saw the ZAR begin to reverse some gains late on Monday and early this morning. This will continue to drive movement in the ZAR as commodity prices start to stabilise and sentiment in major currencies such as the USD starts to improve.

Wednesday 19 August  

  • UK Inflation Data 
  • South African Inflation Data 

Friday 21 August 

  • UK Consumer Confidence 
  • UK Retail Sales 

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Presh JM Reporter

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