Foreign Currency Market Update – GBP / ZAR Update
The South African Rand has found it impossible to cling on to the gains which sent it to a 13-month high against Sterling on 23rd January during the past ten days.
GBP ZAR broke to as high as 17.6558 last Thursday as the leaders of Greece’s new ruling Syriza party conducted a whistle-stop tour of the European Union’s financial capitals. The series of meetings provided the debt-addled Hellenic state’s new Finance Minister Yanis Varoufakis with a platform to air his staunchly anti-austerity views; the leather-clad shaven-headed money man from Athens wasted no time in informing eurogroup Finance Chief Jeroen Dijsselbloem that Greece would refuse to deal with the EU / IMF / ECB ‘Troika’ at their Thursday meeting. Varoufakis’ words made for an extremely awkward post-meeting press conference and the markets shifted out of risk as a consequence – a move which hit the South African Rand hard and sent GBP ZAR through to a fresh 10-day high.
The first two days of this week have brought a generalised improvement in risk sentiment, with the European Union’s policymakers initially suggesting that they might be willing to re-think the Troika’s role in its monitoring of Greece’s economy and then confirming yesterday that it had begun direct negotiations with Athens. The feeling amongst analysts following the developments is that Syriza may be providing Brussels with a means of elegantly withdrawing its severe pan-European austerity measures. An adoption of ‘go for growth’ policies in the euroland would favour the export-driven Rand. In combination with the European Central Bank’s large-scale Quantitative Easing programme, which will see some €1.14 trillion of easy credit pumped into the eurozone’s money markets starting from next month, the outlook for the Rand would appear to be improving. Look for consecutive closes below the pair’s 13-month low of 17.0356 to confirm the emergence of a fresh downtrend for GBP ZAR.
However, the evidence mounts that all is not well with the global economic recovery; last week’s US Federal Reserve policy statement alluded to renewed headwinds in the financial markets and the International Monetary Fund has slashed its 2015 global growth forecasts during recent weeks. Comments yesterday from South Africa’s Mining Minister Ngoako Ramatlhodi that his nation’s coal industry required inward investment of at least 100 billion Rand ($8.7 billion) in order to regenerate local mines is unlikely to re-assure many investors. If the Rand begins to lose favour once more, the GBP ZAR could readily break Northwards towards the psychologically-key 18.0000 threshold.
Heads Up
Summary of major upcoming data releases that we think may move the market.