Rand report: Rand volatility amidst global developments

Last week, the South African rand weakened against 14 of the top 19 currencies we monitor. Another slow week of South African data left the emerging-market currency in the hands of global developments.

On Wednesday, market participants remained focused on the Federal Open Market Committee (FOMC) meeting minutes, searching for clues about potential future interest-rate hikes. Many policymakers deemed it appropriate to hold the federal funds rate steady in June, allowing the FOMC some time to assess economic progress towards full employment. A minority of FOMC participants advocated for an additional 25 basis-point rise in interest rates, citing tight labour market conditions and the 2% inflation goal as the reason for further monetary restriction. Nevertheless, the Fed held their target federal funds rate at 5%-5.25% in June, while reinforcing the need to raise rates further this year.

On Thursday, the ADP employment change figure was released, which exceeded expectations and came in at 497,000. This led to a rally in the USD and anticipation of a strong nonfarm payrolls (NFP) report the following day.

However, Friday’s NFP for June came in at 209,000, down from the previous month’s 306,000 figure and lower than market forecasts. This was the lowest reading since December 2020, causing a significant USD sell-off. Despite these fluctuations, the unemployment rate declined to 3.6% in June, down marginally lower than the 3.7% reading in May.

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THE DOLLAR INDEX

The Dollar Index (DXY) suffered because of recent data output, declining by 0.62% during the last week. The greenback shed 1.04% against the Pound, with the GBP/USD pair topping out at 1.2850 and recording a new 15-month high. The US Dollar lost 0.52% against the Euro, with the EUR/USD pair moving higher and testing the 1.10 resistance level.

The USD even weakened against the faltering ZAR, with the USD/ZAR pair moving 0.10% lower. After opening at R18.83 on Monday and trading within the R18.60 – R19.15 band, the pair closed at R18.80 on Friday.

However, the rand couldn’t hold its ground against the other developed-market currencies. The GBP/ZAR pair climbed 1.24% higher last week, from an open price of R23.93. After peaking at R24.50, the pair ended weekly trade at R24.21. The EUR/ZAR pair also made a move to the upside, appreciating by 0.72%. After kicking off at R20.55 and reaching a weekly high of R20.87, the pair closed off the week at R20.68.

Rand Graph: Supplied

For local data, the S&P Global PMI for June came in at 48.7, up from 47.9 in May and in line with market forecasts. Manufacturing PMI was recorded at 47.6 in June, down from 49.2 in May and exceeding the anticipated decline to 48.9. The foreign exchange reserves in June stood at $61.55 billion, up from the previous month’s $61.29 billion. Overall, the Rand was swayed mostly by the mixed US data, leading to seesaw-like price action for the ZAR throughout the week.

UPCOMING MARKET EVENTS

TUESDAY, 11 JULY

GBP: Unemployment rate (May)

ZAR: Manufacturing production (May)

AUD: Westpac consumer confidence index (July)

AUD: NAB business confidence index (June)

WEDNESDAY, 12 JULY

USD: Inflation rate (June)

NZD: Interest rate decision

THURSDAY, 13 JULY

USD: Producer price index (June)

GBP: Gross domestic product (May)

EUR: Industrial production (May)

ZAR: Mining production (May)

ZAR: Gold production (May)

FRIDAY, 14 JULY

EUR: Balance of trade (May)

NZD: NZ business PMI (June)

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