Rand report: Domestic woes might halt ZAR’s hot streak

Last week, pharmaceutical company Moderna declared that their vaccine candidate is just over 94% effective, following the conclusion of their primary testing. This buoyed sentiment among investors, who are hoping that the worst economic impacts of the pandemic are behind us.

US President-elect, Joe Biden, has also been given the go-ahead to set up his transition team by the General Services Administration (GSA). This negated most of the uncertainty around the election as Biden starts to take office and make his policies known. 

Positive sentiment drove the ZAR higher on Monday and Tuesday despite dismal local economic developments. The fact the country’s assets were further downgraded to deeper junk status has largely been ignored as investors continue to chase higher yielding assets. This bodes well for the local currency’s carry trade potential. 

74ef9e71 rand report graph 20 12 01 - Rand report: Domestic woes might halt ZAR’s hot streak
Image credit: Sable

By Thursday, the ZAR traded within a tight band and remained mostly flat on the day. This came as optimism started to fade and the domestic economic woes became more apparent. The country’s junk status and the potential rise in borrowing costs will increasingly complicate development plans, thereby putting much of its future economic gains in jeopardy. 

The ZAR’s strength is very much still driven by international affairs, especially “risk-on” sentiment for emerging markets. However, local economic developments are playing an increasingly larger role in the prospects of the ZAR, particularly around borrowing costs.

Market event calendar

Tuesday 01 December

  • China: Manufacturing data
  • SA: Manufacturing data 
  • SA: Vehicle sales 

Wednesday 02 December  

  • US: Fed Chairman Jerome Powel testimony 

Thursday 03 December  

  • SA: Standard Bank PMI 
  • US: Manufacturing data 

Friday 04 December  

  • US: Non-farm payrolls 

Monday 07 December  

  • China: Export/Import data 
  • SA: Foreign Exchange Reserves

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