Delayed Moody’s Assessment Encourages South African Rand (ZAR) Gains
After credit ratings agency Moody’s opted to postpone the publication of its review of South African debt the mood towards the South African Rand (ZAR) picked up.
Although there was little expectation of a ratings downgrade among investors the decision nevertheless boosted the appeal of the Rand, encouraging a greater sense of risk appetite.
The continued weakness of the US Dollar (USD) also helped to fuel ZAR exchange rate strength at the start of the week, with worries over the prospect of an imminent Federal Reserve interest rate hike temporarily easing.
However, the South African Rand struggled to hold onto its bullish trend for long as investors engaged in a bout of profit taking this morning.
Signs of Strengthening UK Wage Growth Boost Pound Sterling (GBP) Exchange Rates
While the risks of a no-deal Brexit appear to have increased once again this failed to prevent the Pound Sterling to South African Rand (GBP/ZAR) exchange rate from recovering ground.
Confidence in Pound Sterling (GBP) picked up in the wake of August’s labour market and earnings data, even though employment growth saw a loss of momentum.
Investors were encouraged by the unexpectedly strong uptick in average weekly earnings excluding bonuses, which rose 3.1% in the three months to August.
As August’s inflation rate clocked in at 2.7% this demonstrates an improvement in UK wage growth, increasing the spending power of consumers in the third quarter.
Although wage growth is still relatively muted in historical terms this uptick was enough to boost the Pound across the board, even in the face of an ongoing Brexit stalemate.
GBP/ZAR Exchange Rate Braced For Volatility on Release of UK Inflation Data
Further gains could be in store for the GBP/ZAR exchange rate if Wednesday’s UK consumer price index data also proves encouraging.
After the stronger wage data markets are likely to welcome an easing in the headline inflation rate, which forecasts suggest will slow from 2.7% to 2.6% in September.
While a dip in the inflation rate will give the Bank of England (BoE) less incentive to raise interest rates again in the near future this could still shore up the Pound.
If wage growth looks set to pick up further over the coming months this would improve confidence in the outlook of the UK economy, to the benefit of GBP exchange rates.
However, a further breakdown in Brexit negotiations could still weigh heavily on the Pound this week if the odds of the UK leaving the EU without a deal in place rise.
Underwhelming Retail Sales and Mining Production to Limit South African Rand (ZAR) Demand
The South African Rand may see renewed weakness, however, on the back of August’s South African retail sales and mining production figures.
Both mining and gold production are forecast to show another month of contraction, undermining the outlook of the domestic economy.
If retail sales also show signs of slowing confidence in the Rand is likely to decline, with markets still taking a cautious view of South Africa’s economic health.
Unless domestic data surprises to the upside ZAR exchange rates look set to falter, especially if market risk aversion picks back up in the face of continued global trade tensions.
Sustained US Dollar bearishness, however, could keep the Pound Sterling to South African Rand (GBP/ZAR) exchange rate on a weaker footing.