Over the past week the South African Rand has seen movement mostly dictated by changes in market sentiment.
Post-Brexit Markets saw ZAR Exchange Rates Fluctuate
After the UK voted to leave the European Union, the South African Rand softened versus a number of its major peers as traders flocked to safe-haven assets. Not only was there dampened demand for emerging-market assets, but South Africa’s credit worthiness had been recently called into question.
After the Brexit dust settled and equity markets made a marked recovery, however, demand for high-yielding assets saw the Rand climb versus its major peers. The GBP ZAR exchange rate maintained losses, however, with the UK’s uncertain political landscape undermining trader confidence.
The South African Rand also advanced thanks to significantly reduced odds of a near-term Federal Reserve rate hike, with most analysts’ now forecasting Fed inaction until late 2017.
Will Standard & Poor’s Cut SA to Junk Status?
In early June Standard & Poor’s granted a stay of execution by avoiding downgrading South Africa to junk status. South Africa’s credit worthiness came under question for a number of reasons, not least the lack of confidence in President Jacob Zuma’s ability to rule.
To avoid the debt downgrade, South Africa needs to register better growth. Commodity price weakness has prevented this, although signs that precious metals are rallying will likely be supportive.
Until the constant threat of a downgrade has been averted, traders will become increasingly reluctant to invest heavily in the South African Rand.
GBP ZAR Exchange Rates Hold Weak Position on Brexit Fallout
Although last week saw the British Pound recover some of its losses against the South African Rand after the initial shock of Brexit abated, the GBP ZAR exchange rate is still holding a comparatively weak position.
The UK’s political landscape is in turmoil as the Tory party looks to replace Prime Minister David Cameron after his resignation and the Labour leader Jeremy Corbyn refused to resign despite an overwhelming vote of no confidence.
If gold prices continue to advance at the current pace the GBP ZAR exchange rate is very unlikely to recover to pre-Brexit levels. However, if South Africa fails to prevent Standard & Poor’s from downgrading the government’s IOU certificate the GBP ZAR exchange rate may make a full recovery.
GBP ZAR Exchange Rate: Will Data be Impactful?
British data had minimal impact on exchange rates in the aftermath of the Brexit vote as trader focus was dominated by political developments. Data has become more influential this week, with the UK’s disappointing construction PMI weighing on GBP, but it is still not expected to have a marked impact. This is because most of the data pertains to a pre-Brexit Britain, so the results can be considered somewhat obsolete before publication.
South African data will be somewhat thin on the ground this week so market sentiment is most likely to dictate Rand movement. However; the Standard Bank PMI, Consumer Confidence and Foreign Exchange Reserves may be of interest to those invested in the South African Rand.
Over the past week the GBP ZAR exchange rate was trending within the range of 19.2105 to 19.4214.