Over the past week emerging market assets, such as the South African Rand, have struggled against the backdrop of a global economic slowdown and global equity market volatility. However, many analysts predict the emerging market rout has bottomed out and markets have already priced in weakness as a result of China’s economic struggles.
South African Rand (ZAR) Fluctuates on Political Uncertainty
Over the past week the South African Rand has put on a mixed performance versus its currency rivals. However, a general appreciation can be linked to speculation that President Zuma’s recent mistakes will see him ousted for incompetence. Since Zuma changed the position of Finance Minister twice within a week he has struggled to garner confidence in his rule and inspired significant Rand losses.
China’s well publicised economic woes, low commodity prices and global economic weakness have also had a long-term detrimental impact on demand for the South African Rand. Domestically, South Africa continues to struggle against high unemployment and rising inflation. Fourth-quarter Unemployment came in at 24.5% which was better-than-consensus but still incredibly high.
Pound Sterling (GBP) Caps off Worst Week since 2009
The British Pound dropped to a seven-year low against the US Dollar last week after Mayor of London Boris Johnson voiced his support for those campaigning to leave the European Union. Since Prime Minister David Cameron announced the date of the EU referendum, June 23rd, the Pound has shed a great deal of its value, with many analysts predicting further losses to come. Such is the significance of the EU vote that domestic data, whether positive or negative, had minimal direct impact on the British Pound.
Piling further pressure on the Pound was a dovish speech from Bank of England (BoE) Governor Mark Carney. Mr. Carney stated that the central bank has a lot of room to ease policy if political uncertainty continues to weaken the UK asset.
South African Rand Rallies on PBoC Intervention
In response to news that the People’s Bank of China (PBoC) have far from shied away with respect to using stimulus tools, emerging market assets advanced. The South African Rand advanced close to 2% against the UK Pound on Monday. Emerging market assets have also been supported by traders seeking currencies from nations that benefit from cheap oil.
Also supporting the Rand on Monday was comments from President Zuma that he was not at odds with his newly elected Finance Minister as had been widely publicised. ‘The media has incorrectly reported, among other things, that there is a war at SARS and that the President and the Minister of Finance are somehow at war. This is a total fabrication and mischievous sensationalism,’ it was stated.
Pound Sterling Edges Higher on Positive Domestic Data
The UK’s economic data produced mostly positive results on Monday. Net Consumer Credit, Net Lending Securities on Dwellings, Mortgage Approvals and M4 Money Supply data all rose beyond expectations. Sterling gains have been limited, however, as EU referendum uncertainty continues to be the underlying driving force behind GBP movement.
A new fear is that if the UK exits the EU it will take some 10 years before new deals can be finalised for trading with Europe. The general air of uncertainty, not helped by politicians too focussed on besting each other rather than presenting verifiable facts, is predicted to weigh heavily on the British Pound ahead of the June 23rd vote.
GBP/ZAR Conversion Rate Forecast: EU Referendum Uncertainty to Weigh on GBP
Although South Africa is struggling with its own political uncertainty, the EU referendum continues to dominate trader focus. With the likelihood of a full Sterling recovery almost nil, the Pound Sterling to South African Rand (GBP/ZAR) exchange rate is very likely to hold a weak position.
In terms of ecostats likely to enact changes for the pairing, Tuesday’s South African Gross Domestic Product for the fourth-quarter will be closely watched by traders. With predictions that growth was slower than previous readings, there is a high chance that the Rand will dive in reaction to the data. In terms of British ecostats this week, Thursday’s Services PMI will probably be the most likely ecostat to cause GBP volatility. This is because the services sector accounts for the largest portion of UK GDP.
Over the past week the Pound Sterling to South African Rand (GBP/ZAR) exchange rate was trending within the range of 21.2321 to 22.5927.
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Summary of major upcoming data releases that we think may move the market.