Rand report: ZAR races to two-year high

This, in part, came off the back of stronger commodity prices, which have helped buoy the currency. Continued reassurance from the US that they will not be raising interest rates led to an outflow from the USD and inflow into many emerging market currencies – with the ZAR benefiting tremendously

Image credit: Supplied

Local data saw inflation hit its highest point this year, as expected, with the lifting of lockdowns and loose fiscal and monetary policy aimed at stimulating the economy.  The South African Reserve Bank (SARB) affirmed its current stance of supporting the economy by keeping the interest rate stable. Furthermore, inflation is still within target range, and SARB has not seen any reason to use the interest rate mechanism to reel in inflation. In addition to all of the above, both Fitch and S&P had their ratings review of South Africa on Friday, where they maintained their previous ratings, with nothing being adjusted.

The ZAR may continue on its upward trajectory this week, depending on global developments. The strong demand for commodities (especially precious and ferrous metals) will bode well for the local balance of trade, however this can also drive the Producer Price Index (PPI) and subsequent Consumer Price Index (CPI) higher to the point where an adjustment to monetary policy will be needed. The loose US Fed monetary policy will come into focus this week as jobless claims data is released. Weaker than expected jobless claims will dampen risk appetite and drive emerging market currencies lower. 

Weekly market events:

Tuesday 25 May  

  • SA: Leading Business Cycle Indicator

Thursday 27 May  

  • SA: SACCI Business Confidence
  • SA: PPI Data 
  • US: Jobless Claims

Monday 31 May  

  • CHN: Manufacturing PMI 
  • SA: M3 Money Supply 
  • SA: Balance of Trade

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Presh JM Reporter

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