Foreign Currency Market Update – GBP / ZAR Update
The Pound Sterling powered to its strongest level against the Rand for 13 months during last Wednesday’s session. The GBP ZAR exchange rate topped out at 18.6645 during early trading as investors shifted out of the South African unit en masse.
The improvement which followed for the Rand was driven by unlikely source – the Reserve Bank of New Zealand (RBNZ). The Kiwi central bank made its latest monetary policy announcement on Wednesday evening and the tone of its accompanying commentary surprised market-watchers. Although the RBNZ opted to maintain its official cash rate at its current level of 3.5%, the statement which it published at the same time hinted that its next policy move might be an interest rate hike. The missive stated that, ‘future interest rate adjustments, either up or down, will depend on the emerging flow of economic data.’ Interest rate decisions from the South African Reserve Bank (SARB) and the RBNZ will often move in step thanks to the similarities between their two export-driven economies, so this development therefore favoured the Rand.
Support for the ZAR has once again increased on the day today following the publication of the latest South African trade data which revealed that the nation’s current account deficit had narrowed by a larger than expected amount during the final three months of last year. The value of domestic exports of raw materials increased during this period thanks to the near-cessation of labour market problems in the mining sector. Meanwhile, the sharp drop in global oil prices cut the export costs incurred by South African firms.
Looking ahead, tomorrow’s session could be a pivotal one for the Rand. Look out for the publication of the latest South African inflation numbers to provide further guidance on the likely future direction of the SARB’s official interest rate. A drop from January’s annualised result of 4.4% is anticipated by analysts, with a 3.8% showing the consensus expectation. A pronounced drop would increase the pressure on the SARB to cut its interest rate, hurting the Rand. Meanwhile, tomorrow evening’s US Federal Reserve policy announcement will be closely-monitored by Rand-watchers. No alteration to American interest rates is expected just yet, but any suggestion from the Fed that a hike may be just around the corner will further harm the risk-driven Rand.
Heads Up
Summary of major upcoming data releases that we think may move the market.