Market Risk Aversion Supports Pound Sterling South African Rand (GBP/ZAR) Exchange Rate
Global geopolitical worries and stock market weakness weighed heavily on the South African Rand (ZAR) this morning as investor risk appetite diminished.
The appeal of the Rand diminished sharply as market focus turned towards political risks such as the Italian budget dispute and the increasing international pressure on Saudi Arabia.
As US-China trade tensions remain heightened investors saw little reason to support ZAR exchange rates, with confidence in the domestic outlook equally limited.
Demand for the Rand could weaken further as markets brace for tomorrow’s inaugural budget speech from South Africa’s latest Finance Minister, Tito Mboweni.
If Mboweni fails to reassure investors of his ability to boost the South African economy out of recession the Pound Sterling to South African Rand (GBP/ZAR) exchange rate is likely to gain further ground.
Brexit Uncertainty Mounts over Irish Backstop Impasse
With the Democratic Unionist Party (DUP) poised to back an amendment which would render the Northern Ireland backstop proposal unviable worries over Brexit have kept Pound Sterling (GBP) on the back foot.
The threat of a DUP rebellion over the backstop, which could also potentially torpedo the latest Budget, suggests that domestic political tensions are unlikely to ease in the near future.
Thus, even if UK and EU negotiators reach an agreement the prospect of a no-deal Brexit may continue to hang over the outlook of the Pound for some time to come.
Until the matter of the Irish border is settled the GBP/ZAR exchange rate may struggle to hold onto any degree of strength for long.
UK Business Optimism Slump Limits Pound Sterling (GBP) Upside
October’s CBI business optimism index offered the Pound no cause for confidence, meanwhile, after the index fell short of forecasts to slump from -3 to -16.
This weaker showing highlights the increasing sense of domestic uncertainty as the Brexit deadline draws closer, suggesting that businesses are likely to take a more cautious approach in the coming months.
If the UK economy shows further signs of vulnerability this may drive the GBP/ZAR exchange rate below its recent three-week low of 18.50 as hopes of a stronger third quarter performance fade.
An easing in September’s BBA loans for house purchase figure could add to the bearishness of the Pound, highlighting the weaker outlook of the UK housing market.
South African Rand (ZAR) Volatility Forecast on Inflation Data
Wednesday’s South African consumer price index data could encourage demand for the South African Rand if the figures point towards weaker inflationary pressure.
As long as prices show signs of slowing the case for further South African Reserve Bank (SARB) monetary policy tightening is likely to diminish, to the benefit of the South African Rand.
If inflation continues to push higher, though, this could weigh heavily on the Rand and increase the pressure on the SARB to intervene once again.
ZAR exchange rates also remain vulnerable to shifts in global market risk appetite, with any worsening in geopolitical tensions set to drive the Rand down against its rivals.
Unless risk sentiment picks up significantly the losses of the Pound Sterling to South African Rand (GBP/ZAR) exchange rate could still prove limited.