South African Rand Exchange Rates Stronger as Yuan Stabilises

The South African Rand has stabilised alongside China's Yuan confirming the importance of the Chinese currency to ZAR valuations.

Above: President Zuma sees 1% hit to growth on electricity woes.

China has devalued its currency for three days in a row now; on the first two days the impact on the South African rand exchange rate complex was notable. 

Heavy declines allowed the British pound to push GBP/ZAR above the 20.00 threshold once more.

However, the third cut has encouraged markets as the impact has been negligible confirming the CNY may have found fair value.

This development has allowed the Rand to find its feet and stabilise.

Nevertheless, "the multi-day rand outlook is now dependent on the yuan. The more the yuan falls, the more the rand will fall. The more volatile the yuan, the more volatile the rand. The faster the market gets some clarity on what the Chinese authorities intend, the faster the rand will stabilise,” says analyst John Cairns at Rand Merchant Bank in Johannesburg.

Risks remain though.

Views are split of whether the Chinese authorities are embarking on a major devaluation, step by step, or are merely liberalising the market.

Reuters hints that even the Chinese authorities are split on the matter.

"This story is not yet finished, although the panic has at least eased and the rand’s reactions to the Chinese yuan movements are likely to be smaller," says Cairns.

SA Domestic News: Nothing Encouraging

There is also little domestic news to halt ZAR declines it would seem as local power issues become a major focus once more.

President Zuma said that electricity shortages are taking around 1% off growth per year.

He also said that the nuclear build programme is at an advanced stage, with procurement to be concluded this financial year.

Eskom, meanwhile, has formally shifted its building programme targets: Ingula is now targeted to come online in 2Q16, Medupi to fully produce in 2019 and Kusile in 2021.

Clarity and progress is needed on this front if the longer-term outlook for the rand is to stabilise.

Markets: US Data Watched for Clues on Fed Rate Hike

Today will be released the retail sales data for July.

Estimates report a change increase of 0.6% from -0.3% in June, mostly driven by strong vehicle sales. Initial jobless claims (New people filing for unemployment benefits) will also coming in today.

“This data is expected to remain in line with prior figure at 270K. Last week non-farm payroll report printed lower than expected at 215k vs 225k. We are still thinking that data are not fully supporting a September rate hike,” says a note on the subject from Swissquote Bank in Gland, Switzerland.