Foreign Currency Market Update – GBP / ZAR Update
Last Friday’s US labour market data provided the South African Rand with a strong shove in the right direction.
The official March numbers revealed that, or the first time in over 12 months, under 200,000 jobs had been generated in the world’s leading economy. The lowly result of 126,000 for the Non-Farm Payrolls element of the data was a long way South of what analysts had been expecting and a significant downward revision to both January and February’s counterpart figures added to the impression that the US jobs situation is softening.
Ordinarily such a disappointing outcome from a headline data release in the States would hamper the risk-sensitive Rand’s progress. However, all American employment figures released during coming months will be viewed through the prism of the US Federal Reserve’s assertion last month that it wanted to see ‘further improvement’ in the domestic jobs market before it would countenance an increase in its headline interest rate. The Fed has keep rates at a record low of close to 0.0% since December 2008 and you would need to go back to 2006 to find the last Fed interest rate hike. Global investors therefore remain extremely wary of the effect which rate ‘liftoff’ could have on appetite for risk in the markets. Friday’s US jobs numbers therefore favoured risk-driven currencies including the South African Rand.
The GBP ZAR exchange rate has worked its way downwards from above the psychologically-significant 18.0000 threshold during the middle part of last week to a fresh 2-month low of 17.4494 earlier today following Friday’s US employment data. Meanwhile, the televised 7-way leaders’ debate which took place in the UK last Thursday has increased uncertainty regarding the potential outcome of the UK General Election which takes place four weeks today. Nicola Sturgeon, the leader of the Scottish National Party (SNP), was adjudged by most commentators to have won the debate, apparently increasing the chances that the SNP might be in a position to prop up a Labour minority government after the May 7th popular ballot. Such an outcome would be viewed by most market participants as a non business-friendly result and the Pound would suffer as a consequence. Meanwhile, other analysts point out that a Conservative majority would heighten the likelihood of a UK exit from the European Union. Again investors would express their displeasure at such a prospect by selling off Sterling assets. If political uncertainty continues to weigh down the Pound over the next four weeks, then GBP ZAR has the potential to fall towards its 2015 low of 17.0356.
However, recent analysis of South Africa’s manufacturing sector suggests that the generalised weakening of the Rand during recent years has failed to help the nation’s ailing industries. Investigations suggest that the widespread unrest in South Africa’s labour market and mining sector has more than negated the benefit of a weaker Rand. If the nation’s upcoming manufacturing sector data continues to disappoint, then the Rand could experience renewed selling pressure which would potentially send GBP ZAR back up to 18.0000.
Heads Up
Summary of major upcoming data releases that we think may move the market.
10th April 15:00 UK NIESR Gross Domestic Product Estimate (March)