Fading Market Risk Appetite Shores up Pound Sterling South African Rand (GBP/ZAR) Exchange Rate
As the impact of October’s underwhelming UK PMIs started the fade the Pound Sterling to South African Rand (GBP/ZAR) exchange rate found a solid uptrend.
With market risk appetite easing in the absence of any fresh US-China trade progress the mood towards the South African Rand (ZAR) soured.
Deteriorating confidence in the outlook of the global economy put renewed pressure on the Rand, in spite of credit ratings agency Moody’s leaving South Africa’s credit status unchanged last week.
Investors remain wary of the impact of ongoing international trade tensions on the South African economy, given its exposure to global trade conditions.
Deteriorating South African Manufacturing to Dent Rand (ZAR)
Further gains may be in store for the GBP/ZAR exchange rate tomorrow as forecasts point towards a fresh deterioration in South African manufacturing production.
September’s manufacturing production figures are expected to show a decline on both the month and the year, highlighting the precarious outlook of the South African economy.
Evidence that output slumped at the end of the third quarter would seem to raise the odds of an underwhelming quarterly growth rate, leaving the Rand exposed to fresh selling pressure.
Weakness could also come on the back of October’s business confidence index, with markets anticipating a modest decline on the month.
Unless the South African economy can demonstrate signs of resilience in the face of weaker global trade conditions the appeal of the Rand is likely to weaken further.
Signs of BoE Dovishness May Weigh Heavily on GBP/ZAR Exchange Rate
Even so, Pound Sterling (GBP) may also fall out of favour with investors in the wake of the Bank of England’s (BoE) November policy announcement.
While interest rates are expected to remain on hold once again any fresh signs of dovishness in the meeting minutes could weigh heavily on GBP exchange rates.
If policymakers appear to lean further towards the prospect of lower interest rates this would put a significant dampener on the Pound, even though the BoE’s hands remained tied in the near future.
On the other hand, if the quarterly inflation report highlights a greater sense of confidence in the domestic outlook the GBP/ZAR exchange rate may find a fresh rallying point.
Although Brexit-based uncertainty looks set to cloud the BoE’s ability to plan ahead any hawkish signals from policymakers could offer encouragement to the Pound.
South African Rand Remains Vulnerable to Global Trade Developments
If doubts over the possibility of the US and China agreeing a preliminary trade deal in the near future grow the South African Rand is likely to remain on the back foot.
Without the support of wider market risk appetite the risk-sensitive Rand may struggle to find any particular traction against its rivals.
However, if the two sides appear ready to make an agreement this could give ZAR exchange rates a strong boost.
Unless global trade relations show signs of improvement investors are likely to maintain their cautious view of the South African economy, keeping the GBP/ZAR exchange rate on a positive footing.