Rand Report: A week of varying exchange rates with the US Dollar and British Pound
The South African Rand has fluctuated around 3% since last Tuesday, currently resting at R18.85 against the US Dollar.
The South African Rand has exhibited some fluctuation, oscillating within a roughly 3% range since last Tuesday. As of this writing, it is positioned at the midpoint of this range, valued at R18.85 against the US Dollar. Notably, the Rand’s current exchange rate against the USD mirrors that of the same period last week, indicating a lack of significant price movement.
In a similar vein, the Rand has experienced fluctuations against the British Pound (GBP) over the past week, though within a slightly narrower range, showing a modest increase in strength against the GBP, with the current rate at R23.84.
On Monday, 5 February, the Rand’s value dipped above R19 against the US Dollar, following a negative market reaction to signals from the US Federal Reserve. The indications suggested that interest rates would remain elevated for an extended period. Jerome Powell, the Federal Reserve Chairman, cautioned against premature rate reductions before the objectives of the higher rates are achieved, hinting that the initial cuts in US interest rates might not occur until mid-year. These remarks led to a general weakening of emerging-market currencies, with the Rand being notably affected due to its volatility.
However, Annabel Bishop, the Chief Economist at Investec, offers a positive outlook, stating that emerging-market currencies typically gain strength significantly upon the reduction of US interest rates. This uptrend often precedes the initiation of the US rate cut cycle. Additionally, it is now anticipated that the South African Reserve Bank will delay its interest rate cuts, likely implementing the first reduction in July, subsequent to the US’s rate cut.
THE RAND AGAINST THE DOLLAR
A concern for the Rand is the extent of its potential depreciation against the USD and the GBP before it benefits from the anticipated US rate cut. Historically, the Rand has shown volatility, with instances of decreasing by as much as 10% in a single month. There’s apprehension that the Rand could substantially weaken to levels above R20 or even R21 against the USD in a significant downturn. However, this remains a speculative scenario based on historical patterns rather than a definitive forecast.
THE DOLLAR INDEX
Over the past week, the US Dollar Index (DXY) has strengthened, rising approximately 1% from the previous week. Despite this, the DXY has pulled back from its peak of 104.6 this week to a current level just below 104.
UPCOMING MARKET EVENTS
WEDNESDAY, 7 FEBRUARY
- ZAR: Foreign exchange reserves (January)
- USD: Balance of trade (December)
THURSDAY, 8 FEBRUARY
- ZAR: State of the Nation address
- USD: Initial jobless claims (February)
FRIDAY, 9 FEBRUARY
- USD: Fed Logan speech
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