Rand Report: ZAR strength linked to interest rate expectations

The South African rand has recently shown signs of strength against several major currencies, largely influenced by global shifts in risk sentiment and expectations surrounding the South African Reserve Bank (SARB) interest rate decision. Speculation suggests there will be another rate hike to bolster the ZAR.

The belief that the US may not pursue further rate hikes has also played a role. Local economic data, such as manufacturing and mining figures, has been mixed, but the ZAR’s strength seems more connected to broader global factors and interest rate expectations.

THE RAND AND THE GLOBAL CURRENCIES

Last week, the USD weakened against multiple currencies, with anticipation building around the forthcoming US Federal Reserve interest rate decision. The market consensus is that the Fed will maintain interest rates at 5.5%, though a slight possibility of another rate hike lingers.

This anticipation has caused a surge in the USD’s strength, but market caution prevails. The Federal Open Market Committee (FOMC) press conference following the rate decision is expected to be a focal point, likely increasing market volatility. 

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The Euro weakened against several currencies last week, even as the EU raised its benchmark interest rate to 4.5%, potentially signalling the end of its rate-hiking cycle. The market remains cautious, awaiting US data to assess global trends. This week’s Euro area inflation data and the US interest rate decision are key events that could introduce further volatility. 

The GBP weakened against most major currencies last week, partly due to lower-than-expected UK GDP data for July. Investors are now eyeing the upcoming US interest rate decision as the UK’s economic performance remains uncertain. Inflation data and the Bank of England interest rate decision will be closely watched, with expectations leaning towards another rate hike in the UK.

The ZAR’s fate hinges on domestic and global developments. The release of inflation data on Wednesday is expected to show an increase in both month-on-month and year-on-year figures. On Thursday, the SARB interest rate decision is anticipated, with expectations of maintaining rates at 8.25%. However, this decision could lead to currency depreciation given the backdrop of ongoing rate hikes by major global economies.

Additionally, the ZAR will be influenced by global central bank policy updates, as major central banks make their rate decisions, causing potential currency market volatility.

UPCOMING MARKET EVENTS

TUESDAY, 19 SEPTEMBER

EUR: Inflation data

WEDNESDAY, 20 SEPTEMBER

GBP: UK inflation data

USD: US interest rate decision

ZAR: SA inflation

THURSDAY, 21 SEPTEMBER

ZAR: SA interest rate decision

GBP: UK interest rate decision

FRIDAY, 22 SEPTEMBER

JPY: Japanese interest rate decision

GBP: UK retail sales

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