Foreign Currency Market Update – GBP / ZAR Update
Over the past week, the Pound Sterling to South African Rand (GBP/ZAR) exchange rate was trending within the range of 19.2561 to 19.4373.
Last week the South African Rand advanced versus many of its peers as the US Dollar declined. A succession of disappointing US ecostats caused futures traders to delay bets as to the timing of a Federal Reserve benchmark interest rate hike. Optimism that Greece would make a deal with creditors also improved demand for high-yielding and emerging-market currencies. However, the US Dollar rallied towards the close of last week after Greek Prime Minister Alexis Tsipras called an end to negotiations and prepared the country for a referendum on whether or not to accept proposed austerity measures. The US Dollar advanced thanks to its safe-haven status and caused the Rand to cool versus many of its peers.
Ongoing difficulties with South Africa’s leading energy provider, Eskom, have also weighed on demand for the South African Rand over the past week. Having received a large bailout fund, Eskom attempted to have a bill passed to hike rates. The proposal was rejected by the National Energy Regulator of South Africa (NERSA), however, who found fault with charging more money for less electricity. Eskom’s bailout is unlikely to be enough to improve the grid dramatically and therefore load-shedding and rolling blackouts are likely to continue for a considerable time to come. The cost to the South African economy as a result of Eskom’s failures has been exponential. The South African Reserve Bank (SARB) has stated that policy decisions will be data dependent given the marked economic slowdown as a result of rolling blackouts.
On Tuesday the Pound Sterling to South African Rand (GBP/ZAR) exchange rate continued to hold a position of strength despite a large Sterling decline as a result of dovish comments from Bank of England (BoE) Chief Economist Andy Haldane. This is partly because the Rand tracks Euro losses, but also in response to the US Dollar surge amid heightened demand for safe-haven assets. However, positive domestic data, which saw Private Sector Credit better estimates in May, has caused the Rand to appreciate fractionally. Rumours have also surfaced that Greece is making preparations to reintroduce the Drachma. One thing is for certain, should Greece leave the Eurozone it will call into question the reason for creating a monetary union in the first place, which was to bring Europe closer together. Market sentiment is unlikely to improve until the conclusion of the Greek referendum. What’s more, even if Greece votes to accept the austerity measures there’s no guarantee that creditors will be willing to extend Greece’s bailout given Tsipras’ determined opposition to the austerity proposals already made.
Looking ahead, much of the Rand’s movement over the coming week will be subject to US Dollar and Euro movement. Until more is known about Greece’s future and the future of the currency union, market sentiment is likely to continue to weigh on demand for emerging-market assets. With all that in mind, domestic data is unlikely to be hugely impactful. However; Consumer Confidence, Manufacturing PMI, Total New Vehicle Sales and Trade Balance may be of interest to those invested in the South African asset.
Heads Up
Summary of major upcoming data releases that we think may move the market.