The Rand is already one of the worst performing currencies so far this year and it seems ZAR is set for further losses as political uncertainty cripples demand.
Mistrust of Zuma Continues to Plague South African Rand
Last week the South African Rand managed to rack up some notable gains versus its major peers thanks to reduced Federal Reserve rate hike bets and improved market sentiment. However, gains were short-lived amid concerns regarding ultra-high inflation, slowing economic growth and political uncertainty deriving from mistrust of President Jacob Zuma.
Since Zuma decided to employ a little known small-town lawmaker as Finance Minister, the Rand has struggled to recover. This is mostly due to concerns that Zuma lacks both the skill and integrity to run South Africa efficiently, a feeling exacerbated by accusations of corruption with the Gupta family which is said to have played a hand in choosing ministerial candidates.
Despite comparative US Dollar weakness on Tuesday, the Rand continues to hold a weak position versus its major peers. The Rand’s downtrend is the result of dampened market sentiment amid global stock volatility and weakening commodity prices.
Pound Sterling Edges Higher on US Dollar Weakness
After the US Dollar weakened following less-than-ideal domestic data, the British Pound edged higher versus a number of its major peers. Sterling appreciation was also aided by traders taking advantage of GBP’s low trade weighting.
However, EU referendum uncertainty continues to dominate trader focus. With recent polls showing that those voting to leave the EU have increased dramatically, political uncertainty is likely to limit Sterling gains over the coming months.
On Tuesday the Pound strengthened despite a comparatively dovish financial statement from the Bank of England (BoE). The statement, which is incidentally the last prior to the June 23rd EU referendum, showed that policymakers feared the damage caused by ‘Brexit’ uncertainty rather than the impact from an actual ‘Brexit’. Policymakers also cited the current housing crisis as a major concerns and, as a result, will tighten rules on lending to landlords.
GBP/ZAR Exchange Rate Forecast: Domestic Data to Take a Back Seat
With both the British and South African economic dockets comparatively sparse this week, political uncertainty is likely to be the principle driver behind both GBP and ZAR movement. With that said, there will be some influential data towards the latter half of the week.
Thursday’s UK Consumer Confidence has the potential to provoke volatility, especially if confidence is shown to have dropped; a likely occurrence given ‘Brexit’ uncertainty. The final figure for fourth-quarter British Gross Domestic Product will also be of interest to those invested in the British Pound.
Thursday will also see South African Money Supply, Private Sector Credit, PPI and Balance of Trade.
Friday will see manufacturing reports for both nations which will be likely to cause GBP/ZAR exchange rate changes.
Heads Up
Summary of major upcoming data releases that we think may move the market.