Rand price underperforms further in risk off trade
The rand is currently reflecting a plethora of disappointment from catalysts both domestic and international
The rand has been dealt several blows over the last few days from both a local and international standpoint.
A more hawkish Federal Reserve
A notable decline echoed across a broad range of currencies both developed and emerging, has followed comments from Federal Reserve Chair Jerome Powell. Mr. Powell noted that interest rates in the US are ‘likely to be higher than anticipated’ as economic data proves to be better than expected and the pace of disinflation appears to be slowing from what was witnessed late in 2022. The decidedly more hawkish commentary has seen risk off trade in the marketplace evidenced by a stronger dollar and higher US treasury yields.
Weaker export commodity prices
The strengthening of the US dollar has weighed sharply on commodity prices overnight. Key South African export metals such as gold, platinum group metals (PGMs), copper and to a lesser extent iron ore have all tracked lower following appetite for the dollar but have also found some negative inputs from a softer expectation for Chinese growth (and in turn demand).
The rand is broadly considered to be a commodity driven currency and the short term move in metal prices is adding further pressure.
Local news sparking ZAR underperformance
While the broader directional guidance in currencies has been driven by risk off trade and move to (dollar) safety, the rands short term underperformance in the emerging market space can be attributed to domestic news.
Recent news of the country’s grey listing has been followed on by a not so inspiring cabinet reshuffle by President Cyril Ramaphosa. This bodes negatively for foreign investment into the country and couples with weaker than expected economic growth being, -1.3% Q4 2022 GDP. South Africa’s growth outlook is further stifled by ongoing electricity struggles.
USD/ZAR
The USD/ZAR has now moved above the R18.60/$ resistance level. The move reaffirms the longer-term trend of dollar strength / rand depreciation. While R19/$ provides a psychological target level for the currency pair, April 2020 highs suggest R19.15/$ and R19.30/$ as further longer-term targets for the dollar / ZAR.
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