What we know
The Rand held firm last week near its strongest levels in several months as markets continued to receive softer-than-expected economic data from the US. The local currency was further supported by an uptick in the gold price. Trading took place in a moderate range, with the Rand reaching R16.07 against the dollar on Wednesday afternoon.
The move stronger by the Rand on Wednesday was driven by US inflation data. Broadly speaking, the releases were in line with expectations, and this data alone should not have caused such a sharp reaction. Considered alongside the weak employment figures from the prior week, which had already placed the dollar under pressure, the release reaffirmed that interest rates would not rise as sharply as previously expected. Expectations had shifted from two hikes to only one increase for the remainder of the year. A lower interest rate forecast meant that capital flowing out of the dollar could be directed towards higher-yielding currencies such as the Rand.
Looking at local drivers, South Africa is a net energy importer but an exporter of precious metals, meaning commodity movements heavily influence Rand trading. The combination of higher gold prices and a steady oil price throughout the week was supportive of Rand strength and encouraged inflows into South Africa.
What others say
CNBC – Depleted strategic oil reserve nears level that raises concerns about damage to caverns, operations
“The SPR has tumbled below 300 million barrels for the first time since it was filled in the early 1980s, according to federal data released this week.“
Visual Capitalist – Mapped: The Cost to Retire Comfortably Around the World
“Singapore is the most expensive country for Americans to retire comfortably, requiring an estimated $1.1 million, while Pakistan is the cheapest at $187,000.“
Axios – Even some Republican voters sour on Trump
“High prices, a persistent war and anxiety about corruption are quickly eroding President Trump’s support among Republicans, a warning sign for the White House with less than 80 days to the midterms.“
What we think
Last week we said that “the likelihood of a Federal Reserve rate hike at the upcoming September meeting is currently considered a coin toss, sitting at between 44% and 50%, down from approximately 67% prior to July’s softer-than-expected jobs report”, and that “the Rand is navigating two very different global forces simultaneously. A softer dollar is providing support, while rising oil prices and geopolitical uncertainty are working in the opposite direction.”
With interest rate forecasts having shifted, the upcoming release of minutes from the Fed’s FOMC meeting may provide the market with some direction following a relatively quiet week of trading.
As we reach the end of the initial 60-day Memorandum of Understanding in the war between the US and Iran, the situation remains one of wait and see. The tone from Trump over the past week or two has been more measured than markets have come to expect, leaving the path forward unclear.
Our range for the week: R16.05 to R16.35.
Have a great week ahead.
