Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Rose as ZA Mining Production Plummets
UPDATE: The Pound Sterling South African Rand (GBP/ZAR) exchange rate rallied by around 2.7% on Thursday afternoon. This left the pairing trading at around R21.5685.
The South African Rand plummeted after data showed mining production in the country fell sharply in March and April.
Total mining output plummeted by an annual rate of -18% in March and a dire 47.3% in April as the nationwide lockdown to contain the virus began at the end of March.
Further weak domestic data weighed on ZAR as South African factory output slumped by -5.4% in March.
Added to this, risk appetite slumped further after initial US jobless claims revealed over a million more Americans lost their jobs.
This afternoon’s data suggested it would take the US labour market years to recover form this historic blow despite the number of claims continuing to fall after March’s peak. This weighed on risk appetite and sent the Rand lower.
Commenting on US labour market statistics, Nancy Vanden Houten, lead U.S. economist at Oxford Economics in New York stated:
‘The steady retreat in claims is a positive development, but the labor market has suffered a traumatic blow and a full recovery will be measured in years, not weeks or months.
‘The figures don’t capture the full extent of the blow dealt to workers during this unique crisis.’
Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Rallies on Fed’s Economic Projections
The Pound Sterling South African Rand (GBP/ZAR) exchange rate rose 0.5% on Thursday morning. This left the pairing trading at around R21.1121.
The risk-sensitive South African Rand slumped on Thursday following Wednesday evening’s Federal Reserve monetary policy meeting.
The US central bank revealed bleak economic projections for the world’s largest economy, dampening the recent upswing in risk appetite.
Investors were rattled after the Fed said it expects rates to remain near zero for years to come. Although, this was welcomed as a sign of the bank’s continued support for asset prices.
Speaking via video link, Fed Chair Jerome Powell noted:
‘It is a long road. We are not even thinking about thinking about raising rates.’
The Fed also noted that it expects the economy to shrink by around -6.5% and the US unemployment rate is likely to remain around 9.3% by the end of 2020.
This sent traders flocking away from riskier assets such as ZAR, and back towards safe-haven currencies like the US Dollar (USD).
Commenting on the bank’s dire outlook, Bianca Botes, executive director at Peregrine Treasury Solutions in Pretoria wrote in a note:
‘The gloomy outlook by the Fed brought over optimistic markets back to reality.’
Sterling (GBP) Gains Capped Ahead of Friday’s Growth Data
The Pound was able to make gains against a weaker Rand today as traders flocked away from riskier assets.
However, gains were limited as traders look to Friday’s slew of data which is expected to show GDP tumbled.
Economists believe tomorrow’s data will show the British economy suffered a record collapse in April thanks to coronavirus lockdowns.
April was when most of the economy was subject to strict restrictions and is largely expected to be the low point of the economic slump.
A report from Reuters showed the median expectation amongst analyst was a -18.4% monthly fall in GDP.
The most pessimistic forecast is for a -31.5% contraction from Investec’s chief economist Philip Shaw. Commenting on this, Shaw noted:
‘I do feel a bit like Doctor Doom’
Sterling gains were limited as the least pessimistic analyst still predicted growth would drop by -8.5%. This is still a worse decline compared to anything seen during the 2008-2009 global financial crisis.
Expectations have been mixed after last week’s US jobs data shocked investors and boosted risk appetite. 2.5 million jobs were added to the economy despite forecasts predicting a drop of 8 million.
According to Commerzbank economist, Peter Dixon:
‘I’ve been racking my brains to figure out what’s happened in the past, if there’s anything out there that would help me to understand what’s going on now. And the answer is, I don’t think there is. We’re in genuinely uncharted territory.’
Pound South African Rand Outlook: Traders Await ZA Mining Data
Looking ahead, investors in South Africa are awaiting the release of mining production and manufacturing production data.
This could send the South African Rand (ZAR) lower against the Pound (GBP) as the data will allow investors to gauge the health of the domestic economy.
With Africa’s most industrialised economy already in recession before the coronavirus pandemic hit, it is likely further dire data will send the Rand lower.
Meanwhile, traders will be focused on the slew of economic data release for the UK on Friday morning.
Data is expected to show UK growth has plummeted in April due to coronavirus lockdown measures. This will limit Sterling gains and leave the Pound South African Rand (GBP/ZAR) exchange rate flat.