Foreign Currency Market Update – GBP / ZAR Update
The Pound Sterling to South African Rand exchange rate strengthened to a session high of 18.5990 on Monday as a rallying US Dollar and concerns over Africa’s most advanced economy weighed upon the Rand. The deteriorating situation in Iraq also weighed as investors favoured safer assets over riskier emerging market and commodity linked assets.
Weak US data released last week allowed the South African Rand and other emerging market currencies to advance against the US Dollar. The Rand could make gains this week against the ‘Greenback’ if US data comes in below expectations again and heightens speculation that the Federal Reserve will delay hiking interest rates.
So far this month the South African Rand has strengthened by 0.75% against the US Dollar and managed to reach its best level in two weeks last Thursday as a string of economic data releases out of the US weighed heavily on the ‘Greenback’. Against the Pound Sterling, the South African Rand has lost 2.05% and fell to its weakest level since 2009 last week.
The Rand softened on Monday as China released data showing that house prices in the world’s second largest economy fell by 6.1% in April on a year-on-year basis. The poor figure matched the decline seen in March and heightened concerns that the Chinese economy is slowing. As China is a major importer of South African commodities, any sign of weakness in the Asian economy has a negative impact upon the Rand and other commodity linked currencies.
Adding to the risk-off stance taken by traders were concerns over the deteriorating situation in Iraq and Yemen. After heavy fighting, Islamic State claimed to take full control of the western Iraqi city of Ramadi over the weekend. The loss of the city is the biggest defeat for the Iraqi government since the Islamic State overran large swathes of the country last summer.
In Yemen, Arab coalition warplanes resumed their attacks against Houthi rebels despite a United Nations envoy calling for an extension to the five-day humanitarian ceasefire, which ended late on Sunday. Worries are building that the conflict could lead to a disruption of oil supplies and affect trade routes; which lead through the Gulf of Aden and the Red Sea.
Worries are also high over the strength of the South African economy after car manufacturers in the country revised down their short-term vehicle sale expectations.
Heads Up
Summary of major upcoming data releases that we think may move the market.