Foreign Currency Market Update – GBP / ZAR Update
A mixture of global economic concerns and domestic pressures have left the South African Rand struggling of late and the emerging-market currency recently sank to record lows against both the Pound and US Dollar.
The Rand’s downtrend continued at the beginning of this week as the steepest drop in Chinese stocks since the global financial crash triggered a succession of wild movements in both worldwide equity markets and the currency market. The events earned the ominous nickname ‘Black Monday’ and it was certainly a black day for the Rand.
With the price of key South African commodities like iron ore and platinum coming under significant pressure, the Rand was likewise driven lower and struck 14.0682 before a correction saw the USD/ZAR pairing fall back below the 14 Rand per Dollar level.
The Pound Sterling to South African Rand exchange rate, meanwhile, was able to surge to a historic high of 21.3359 during Monday’s European session.
However, with the stock market slump and the prospect of a prolonged slowdown in the world’s second largest economy having a damaging impact on Federal Reserve interest rate hike projections, the Rand was able to recover some of its losses on Tuesday. The news that the People’s Bank of China (PBoC) also cut interest rates in an attempt to restore stability contributed to the Rand’s 1.3% gain on the Pound, although many industry experts deemed the action insufficient in the face of Monday’s turmoil.
The Rand rallied back to around 20.5700 against the Pound as market conditions calmed on Tuesday.
South African data published on Tuesday also showed that mining production staged something of a rebound in June, with output rising by 1.1% on the month (instead of falling -3.6% as forecast) and the annual figure printing at an unexpectedly strong 4%. South Africa’s second quarter growth data was less impressive, however, with the nation posting annualised contraction of -1.3% in the three months through June following growth of 1.3% in the first quarter. Expansion of 0.6% had been anticipated.
Whether or not the GBP/ZAR pairing resumes its uptrend in the week ahead largely depends on global economic sentiment, although the week’s two main ecostats for the UK (both due for publication on Friday) will also have an impact. An increase in the level of consumer confidence or a better-than-forecast uptick in second quarter growth would support Bank of England (BoE) rate hike projections and could push the Pound higher against its peers. Conversely, disappointing data may see Sterling move further away from its recent record highs against the Rand.
Given the current speculation surrounding the Federal Reserve’s intentions regarding raising borrowing costs before the end of 2015, US reports (like the nation’s upcoming second quarter growth figure) will also influence the direction taken by emerging-market currencies like the Rand. If Fed rate bets fall, the Rand could climb.
Heads Up
Summary of major upcoming data releases that we think may move the market.