Recently, there has been a massive surge in currencies backed by commodity prices due to international tensions. South Africa has been poised to reap these benefits as the rand continues to strengthen.
The ZAR strengthened against 18 of its top 19 currency pairs, with the most notable strengthening against the Japanese Yen (JPY) (5.23%). This has brought the currency to its strongest point in 10 months. The main catalyst for this move was the South African Reserve Bank’s (SARB’s) interest rate decision, where rates were increased by 25 basis points to 4.25%, as anticipated. Even though this increase was expected, the market took this as a positive, resulting in a stronger ZAR. At the announcement, the SARB Governor, Lesetja Kganyago, painted a rosy picture of the outlook for the country, which could have helped the rand’s current bullish move.
The rand has moved to some impressive levels and is currently trading at 19.21 against the British Pound, 14.67 against the US Dollar and 16.10 against the Euro.
This week, we have two main data points: The unemployment rate on Tuesday and the trade balance on Thursday. We’ll watch closely to see if the ZAR can hold on to gains from the past month. The EU will also release its unemployment data on Tuesday. This is expected to increase quite drastically with the main contributing factor being a massive increase in energy prices by over 30%.
The nonfarm payroll data will be released on Friday and could result in a fierce move in the market. It will be an interesting data point to watch.
In the northern hemisphere, the war in Ukraine remains a critical risk factor and has created an interesting point in market history where the anticipation and lack of constructible political information have caused most currencies near the region to take quite a knock. This is mainly due to the EU energy markets’ supply being restricted, causing massive hikes in the short- and medium-term contract prices.
Upcoming market events
Monday 28 March
GBP: BoE speech against interest hikes for future
Tuesday 29 March
ZAR: Unemployment rate Q4
Wednesday 30 March
USD: GDP annualizations Q4
Thursday 31 March
GBP: GDP data Q4
Friday 1 April
USD: Nonfarm payroll expected to be under-performing
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