The South African Rand (ZAR) started the week of September 4, 2023, on a weak note, experiencing significant depreciation against major currencies. This decline, surpassing 1%, was primarily driven by a deteriorating Chinese economic outlook and cautious anticipation of higher US nonfarm payrolls data. While these factors weighed on the rand, the week ahead held the promise of providing further insights into its trajectory.
Stable Rand Performance with a Shift in Focus to PPI Data
In the previous week, South Africa’s currency demonstrated a relatively stable performance. However, market attention shifted to the producer price index (PPI) data, which raised concerns for the rand. Both month-on-month and year-on-year PPI figures for July fell below expectations, sparking worries about potential declines in producer prices. While this could alleviate inflationary pressures, the market’s response was swift and negative. The rand experienced a sell-off as investors perceived the possibility of the South African Reserve Bank (SARB) pausing its rate-hiking cycle or even contemplating rate cuts in the near future. It is crucial to note that this represents only one data point, and the potential for another rate hike by the SARB remains on the table.
Focus on Q2 GDP Growth Figures and Current Account Data
This week, investor attention will turn to Tuesday when the Q2 GDP growth figures are set to be revealed. Projections indicate a slight dip in quarter-on-quarter data, moving from 0.4% to 0.1%. However, year-on-year data is expected to show an increase, rising from 0.2% to 1.2%. These figures could provide greater clarity regarding South Africa’s economic recovery and exert an influence on the rand’s performance.
On Thursday, the focus will shift to South Africa’s current account data. While a widening deficit is anticipated, the extent of this change remains uncertain. The rand’s response to this data will depend on the size of the deficit and its implications for the country’s balance of payments.
Influences on Rand’s Outlook: Domestic and Global Factors
The rand’s outlook for the week was shaped by a combination of domestic and global factors. The situation in the Chinese economy and its repercussions on global markets played a substantial role in the currency’s performance, highlighting the interconnected nature of the global economy. Furthermore, the release of higher US nonfarm payroll data introduced an element of uncertainty, as it suggested the possibility of the US Federal Reserve contemplating rate hikes. Nonetheless, this remained speculative, and the market awaited further clarification.
Upcoming Market Events for the Week
Tuesday, September 5:
- ZAR: GDP growth
- AUD: RBA interest rate decision
- EUR: ECB President Lagarde’s speech
Wednesday, September 6:
- AUS: GDP
- EUR: Retail sales
- USD: Services PMI
Thursday, September 7:
- EUR: GDP
- AUD: Trade balance
- ZAR: Business confidence
Friday, September 8:
- EUR: Germany CPI