SA Rand Weakness: The Real Cause is Not so Exciting
Some media outlets have blamed the mid-week slump in the rand exchange rate complex (ZAR) on domestic issues.
Xenophobic attacks and power blackouts were the headline grabbing events that were haphazardly slapped onto the list of causes behind the decline in ZAR in the mid-week session.
While it may seem obvious to the casual observer that this doom-and-gloom is behind market moves, we argue as we often do, that this is merely lazy journalism.
The drivers behind ZAR valuations remain the same, albeit boring, culprits.
“EUR/USD remains the driver behind most of these moves. After having hit 1.0520 on Monday, the pair has swung back to 1.07, reducing any upward pressure on USD/ZAR. The great dollar rally of 2014/2015 is struggling to get going again,” says John Cairns at RMB in Johannesburg.
At the time of writing, converting euros into rands is done off an exchange rate (EUR-ZAR) of 12.9092.
The US dollar converts into 12.0299.
The spot market level on the pound to rand exchange rate (GBP-ZAR) is seen at 17.9530. This is around the middle of the long-term range.
Banks transferring money to SA currently offer around 17.44 while independent provider RationalFX is closer to the market at 17.60. Find out more on how this all works here.
“The rand is likely to remain choppy but without direction and within existing ranges as the rush of global news gets absorbed,” says Cairns.
So for the ZAR outlook keep an eye on events in the United States and Europe. It is the massive global currency flows between these two continents that are catching the ZAR in their crossfire.
Also watch China, the recent data shock out of the world’s second largest economy knocked the SA currency hard at the start of the week and could continue to do so.
M&A Action: Virgin Gym Buyout
Merger & Acquisition action could, at some stage, provide a boost to the pound sterling v South African Rand exchange rate.
It has been announced that South Africa’s Brait SE will pay around 682 million pounds to Richard Branson and CVC Capital for a controlling stake of the African assets of Virgin Active.
This flow of currency should provide further support to sterling-rand.
The ZAR's Peers: CAD and AUD
The Rand’s commodity dollar brethren, the Australian and Canadian dollars, are meanwhile doing their own thing.
Often when we have big news out of China and the commodity price complex we see all three move in tandem.
However, domestic events are currently driving the agenda.
Canadian policymakers chose to maintain the 0.75% benchmark interest rate and in its statement, the central bank noted an economic stall in the first quarter due to lower crude oil prices.
The bank forecasts activity to strengthen by the middle of the year as non-energy exports and demand from the US accelerates.
This morning we found the jobless rate in Australia fell unexpectedly in March resulting from increased public confidence that the central bank’s strategies in stimulating the economy will be effective.
Earlier this week the decision was made to not implement a further downward revision of interest rates as had been widely expected.
GBPAUD currently trades at 1.9146.
