Over the last seven days the Pound Sterling to South African Rand (GBP/ZAR) exchange rate was trending within the range of 23.9724 to 24.6781.
With the exception of the Pound, which performed disappointingly last week thanks to poor domestic data and crashing global stock values, the South African Rand extended losses versus its major peers. The Rand has lost 26% of its value in the six months following the initial emergence of turmoil in China’s equity markets last June. This, in addition to weak domestic growth and political uncertainty, has weighed heavily on demand for the Rand. Of particular disappointment last week was November’s South African Manufacturing Production numbers, which saw a larger-than-forecast contraction on both a monthly and annual basis.
Meanwhile, the Pound also struggled versus its peers last week, positing an eighth consecutive week of declines versus the Euro. This was mostly the result of expectations that the forthcoming EU referendum will cause a prolonged period of trader uncertainty. Bank of England (BoE) inaction in the interest rate decision also weighed on investor confidence, with the low price of oil and turmoil in emerging markets predicted to weigh heavily on British economic and inflationary growth prospects.
On Monday the GBP/ZAR exchange rate edged fractionally higher after British house price growth in January was considered robust. However, the Rand exchange rate has improved versus many of its rivals in early thanks to improving market sentiment. Chinese equities ended the Asian session higher after the People’s Bank of China (PBoC) announced that it intends to safeguard markets against offshore speculation by implementing a reserve requirement ratio for some banks involved in the offshore Yuan market. This saw demand for high-yielding emerging market assets improve significantly. Rand gains are not expected to be sustained in the long-term, however, with falling oil prices continuing to weigh heavily on trader risk appetite. Also, history has shown that PBoC intervention has not had any lasting impact on China’s volatile equity markets.
Looking ahead, there will be several influential data publications with the potential to shake up the GBP/ZAR conversion rate this week. Tuesday will be very significant with the publication of British consumer prices data. Low inflation is one of the main concerns for Bank of England (BoE) policymakers so any improvement in consumer prices will likely be met with marked Sterling appreciation. On Wednesday, South African inflation data will be of interest, as will British labour market data. However, market sentiment and global stock values will be far more likely to impact the GBP/ZAR exchange rate. Wednesday will also see South African retail sales data, which could cause changes for the Rand. Thursday will see the UK’s CBI Business Optimism Index for the first quarter and Friday will see British Public Sector and Retail Sales data. But an absence of South African data for the second half of the week should see Rand volatility continue to be dictated by China and market sentiment.
Heads Up
Summary of major upcoming data releases that we think may move the market.