Foreign Currency Market Update – GBP / ZAR Update
Although the last week yielded a generally softer Pound, thanks to evidence of a widened UK deficit and lower than hoped for BBA Loans for House Purchase data, the Rand ultimately struggled to strongly capitalise on the downturn of its rival.
Wednesday’s South African Inflation data proved to be disappointing, as the year-on-year figure for August eased further than anticipated to print at 4.6% rather than 4.8%. As this was not a substantially concerning result for investors and in spite of being the lowest level of inflation in three months, the GBP/ZAR conversion rate rapidly slumped to a low of 20.8145 in response. With the pace of domestic price rises remaining within the target range of the South African Reserve Bank (SARB) this data was deemed generally supportive of the Rand. Although the SARB’s following decision to leave interest rates on hold at 6% was not unexpected the cautious tone of the accompanying statement did not offer particular encouragement to pundits, allowing the GBP/ZAR currency pair to return to an uptrend.
Fresh indications of turmoil in the Chinese manufacturing sector and, consequently, the global commodity market weighed heavily on the Rand during the latter week. As with many of the other emerging market and commodity-correlated currencies, the Rand was driven to multi-year lows against the majors as the GBP/ZAR exchange rate rose to a peak of 21.4520 in spite of Sterling softness. Demand for many of South Africa’s key base metal exports looks set to decline as China’s economy continues to weaken, an issue that will drive the outlook of the currency regardless of any strength in domestic data.
As several key members of the US Federal Open Market Committee (FOMC) intimated that an interest rate rise was still on the table before the end of 2015 a second line of pressure came to bear on the Rand. Should the ‘Greenback’ be further strengthened by such a move the GBP/ZAR pairing could surge to new highs, as a strong US Dollar stands to significantly weaken the local currency with its impact on trade values.
The unfolding Volkswagen emissions scandal has also helped spur the Rand on a general downtrend, as the price of platinum has been substantially undercut by the news. As the base metal is a major component in the catalytic converter of diesel engines the potential move away from diesel-based cars this crisis may trigger saw platinum fall to a six-year low. However, the impracticality of any immediate wholesale abandonment of the diesel market soon saw the commodity begin to pick up some of its lost value, with investors hopeful of a more minor ultimate impact upon the wider automobile industry.
Upcoming this week, the South African Balance of Trade and Manufacturing PMI figures could spur some manner of rally for the Rand with more positive showings. As domestic manufacturing is expected to have increased in September traders are braced for some supportive data, although further developments on the nation’s major commodities and the wider global economy are likely to have a greater impact.
Heads Up
Summary of major upcoming data releases that we think may move the market.