SA Private Sector Activity Eases – Pound South African Rand (GBP/ZAR) Exchange Rate Fluctuates

Ramaphosa Investment Plan could Boost South African Rand (ZAR) Exchange Rates

The South African economy could see growth of 4.5% from 2020 if President Cyril Ramaphosa is successful in achieving his target of attracting trillions in new investment over the next five years.

This is according to the prognostications of Nedbank Economist Dennis Dykes, who argued that an extra infusion of private sector investment could create near 1.5 million jobs – and more if certain economic changes are made.

If this does occur then it would have positive implications for the South African Rand (ZAR).

This will, however, be entirely dependent on Ramaphosa successfully dealing with key policy issues like the Mining Charter and the expropriation of land without compensation, with the latter being a major red flag for would-be investors.

Quiet UK Data Day Leaves Pound (GBP) Exchange Rates Floundering

The Pound South African Rand (GBP/ZAR) exchange rate fluctuated on Friday, limited by a combination of deteriorating UK data, divergent Brexit talk and diminishing rate hike hopes for next week.

Whilst today was a rather quiet one for British ecostats, the latest forecast from the National Institute for Economic and Social Research (NIESR) did cause a bit of a stir, with the think-tank slashing its forecasts for 2018 down from 1.9% to 1.4%.

The group also forecast that interest rates would not rise again until August at the earliest, a prognostication that seemed increasingly likely given the poor performance of the UK’s private sector, reflected in the latest purchasing managers’ index (PMI) results.

Amit Kara, NIESR Economist, echoed that this downward revision was largely a reflection of the subpar economic growth readings in Q1, stating:

‘It is not clear if this is just a soft patch, or the start of a prolonged period of weakness’.

Mr Kara also stressed that growth would likely pickup over the next three quarters, however.

This has left the Pound on uncertain footing, supported by strength in the labour market but weakened by anticipation of a dovish Bank of England (BoE).

South African Rand (ZAR) Exchange Rates Volatile on Poor Private Sector Activity

The South African Rand’s (ZAR) volatility today was largely due to two factors; the latest South African Standard Bank PMI release and the US labour market statistics.

The headline Standard Bank PMI – an indicator of changes in private sector business conditions in South Africa – dipped from 51.1 the past month to 50.4 in April.

This slowdown was caused by falling output on the back of the listeria outbreak, ongoing labour strikes and a VAT hike from 14% to 15%.

There was, however, a recorded increase in new business during April, with this rise now marking the third consecutive month of expansion.

In other news, the US labour readings were rather upbeat, with unemployment falling to a staggering 3.9% in April, below the forecast of 4.0% and marking the lowest result since 2000.

Wage growth was slightly below expectations, with average hourly earnings falling from 0.2% to 0.1% month-on-month, but the 164k increase in non-farm payrolls and the better-than-expected unemployment rate gave investors plenty of reason to buy into the ‘Greenback’.

This has, in turn, encumbered the South African Rand.

Pound South African Rand (GBP/ZAR) Exchange Rate Forecast: Bank of England Rate Decision in the Spotlight

The Pound South African Rand (GBP/ZAR) exchange rate could see even greater volatility next week when markets respond to the Bank of England’s latest rate decision.

Analysts are not expecting a rate hike on this occasion (with rate swaps now sitting below 10%), but there is the possibility that the central bank could have a few optimistic things to say, especially considering the strength of the UK’s labour market.

If bank Governor Mark Carney asserts that the bank is still on track to raise interest rates once more this year then the Pound could rally.

It is also highly likely that the Monetary Policy Committee (MPC) will just remain cautious, however, citing the weak growth results for Q1 as examples of fragility in the UK’s economy.

For the South African Rand (ZAR), next week will predominantly revolve around the latest manufacturing production readings for March (also due on Thursday), with a substantial rise forecast from 0.6% to 1.91% year-on-year.

If this does indeed occur then the GBP/ZAR exchange rate could encounter pressures.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon