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Last week saw the rand post significant gains against major currencies, especially against the GBP and the USD. On Tuesday, the ZAR opened at GBP/ZAR 21.86 and closed at around GBP/ZAR 21.46, reaching 11-week highs in the process. This trend continued for much of the week until Friday when the local currency hit resistance at GBP/ZAR 21.20.
The rand’s strength was mainly driven by the reopening of the local economy and the increase of global economic activity as some countries started to ease lockdown and quarantine rules. Fears of the effects of a global recession have also abated somewhat due to positive economic data being released. Tellingly, the US posted significantly higher than expected non-farm payrolls. This led to an increase in investor risk appetite, which almost always leads to gains in emerging market assets. This is certainly true in this case, as most emerging markets posted gains during the middle of last week.
The local currency traded mainly flat on Friday and yesterday as uncertainty returned to the market. This was mainly derived from the reemergence of Brexit talks (a deadline extension until 30 June) and geopolitical tensions between the US and China. As lockdown and quarantine restrictions are lifted, and economic activity returns, these tensions will play a larger role in driving markets. This is especially true for emerging markets as the demand for riskier assets declines in a more uncertain climate.
Last week’s gains in the ZAR could be merely just a short-term reversal in the longer term weakening of the local currency. This is evident in the fact that the rand has been trending downward since early May of this year and can be expected to continue to do so – local economic data does not bode well for the long term prospects of the currency.
Market event calendar
Tuesday 9 June
- South Africa unemployment rate
- South Africa SACCI business confidence
Wednesday 10 June
- China inflation rate
- US inflation rate
- US Fed interest rate decision
Thursday 11 June
- South Africa mining and manufacturing data
Friday 12 June
- South Africa business confidence