RAND TALKING POINTS
USD/ZAR FUNDAMENTAL BACKDROP
The South African rand[3] has been gradually strengthening against the greenback after reaching swing highs in mid-July this year but recent concerns around a global economic slowdown prompted risk aversion leaving Emerging Market (EM) currencies[4] vulnerable. The rand’s resilience (see graphic below) during these tough currency conditions, stems from an increase in mining production and exports as a result of Europe’s sanction on several Russian commodities including coal. This could not have come at a better time as the Chinese economy (South Africa’s largest importer of commodities) looks to be anguishing under the strain of a property crisis as well as a ‘zero tolerance’ COVID-19 approach.
Source: Thompson Reuters
Earlier this afternoon, South African retail sales figures were released showing a marked improvement MoM for June however, the extreme lag on this data was not reflected in rand price action. More pertinent was the U.S. issue (0%) which marginally missed estimates at 0.1% showing no change in sales from the prior month while core exceeded expectations which may support further dollar strength.
Source: DailyFX Economic Calendar[6]
Later this evening the U.S. FOMC Minutes will be in focus with markets in anticipation of a push back to the current 2023 monetary easing narrative or not. This should give some indication as to short/medium-term forward guidance on the U.S. dollar[7].
ZAR being a high beta (high risk) currency coupled with global recessionary fears, we may see the rand come under pressure later in the year. The safe-haven dollar may gain more traction particularly when the
