Last week’s comments from South African Reserve Bank Governor Gill Marcus, stating that there is ‘limited, if any, room’ for domestic interest rate cuts in the short-to-medium term due to persistently high levels of South African inflation, have reaffirmed the Rand’s position as one of the most risk-sensitive currencies in the global economy.
Foreign Currency Market Update – GBP / ZAR Update
The GBP ZAR exchange rate has surged during the past week, making gains in six consecutive sessions leading up to today. This forward move saw the pair break to a new five and a half month high of 13.2237 during late trading yesterday. The gains were largely driven by a move out of riskier, more rewarding asset classes including the Rand, by institutional investors, due to fears over a potentially chaotic debt default by Greece. With it looking increasingly unlikely that a coalition government will be formed ahead of this Thursday’s deadline following the recent indecisive general election in the troubled Hellenic state, a fresh election next month now appears a running certainty. Yesterday’s announcement by the ‘Democratic Left’ party that it would only form a coalition which contained the hardline anti-bailout Syriza bloc appears to make an anti-bailout government more likely than ever. If this scenario transpired following a second election in less than two months, then a Greek default would become highly probable, causing the spread of damaging bad debt contagion throughout the global financial system. This would cause further severe downside pressure on the South African currency.
Meanwhile in the UK, last Thursday’s Bank of England monetary policy announcement proved supportive for the Pound, as the nine-man committee opted to maintain the Bank’s Quantitative Easing programme at its current level of £325bn. The broad Sterling gains which followed suggested that a significant percentage of analysts had anticipated that committee members would vote for an increase to the programme.
Last week’s comments from South African Reserve Bank Governor Gill Marcus, stating that there is ‘limited, if any, room’ for domestic interest rate cuts in the short-to-medium term due to persistently high levels of South African inflation, have reaffirmed the Rand’s position as one of the most risk-sensitive currencies in the global economy. This means that further bad news from the eurozone could see GBP ZAR break through last November’s multi-year high of 13.3578 in the near-term. Equally, a rapid resolution to Greece’s problems, leading to an increase in appetite for risk amongst institutional investors, could see the Rand rapidly reverse its losses of the past two months to make a renewed run at mid-March’s key interim floor of 11.7624.
Summary of major upcoming data releases that we think may move the market.
- The South African Rand has been battered in the markets over the past four weeks
- The South African Rand began last week’s session in go-ahead mood
- Sterling spent the early part of last week firmly in the ascendency against the South African Rand
- Last week saw indecision grip the GBP ZAR market
- Pound Sterling to South African Rand Foreign Currency Exchange Rate Forecast – Rand up on Record Gold Prices