Last week, the rand opened at its strongest rate this year, trading at R17.67 against the US dollar. This was supported by easing global tensions, particularly in the Middle East, which had previously led to risk-averse behaviour in global markets. As concerns about potential conflicts lessened, investors moved away from the dollar and turned to riskier assets, boosting the rand’s momentum. Additionally, South Africa’s producer price inflation (PPI) exceeded expectations, affirming the South African Reserve Bank’s (SARB) decision to maintain higher interest rates to control inflation. This hawkish stance by the SARB helped strengthen the rand during the early part of the week.
On Wednesday, the rand lost some of its strength as attention shifted to the July PPI, with markets expecting a 4.5% index. Concerns about the health of the domestic economy created uncertainty. However, by Thursday, the losses were reversed when the actual PPI came in at 4.2%, indicating lower inflation and improvements in the supply side of South Africa’s industrial economy. With inflation sitting at the midpoint of the SARB’s 3% to 6% target range, expectations grew that the central bank might cut interest rates for the first time in four years next month. The rand closed at R17.70 against the dollar on Thursday.
Friday saw the most significant movement in the rand, briefly strengthening to R17.59 before US data revealed that core personal consumption expenditure, a key inflation measure, held steady at 0.2%. This solidified expectations for a 25-basis point rate cut by the US Federal Reserve in September, with the rand closing the week at R17.80. As the new week began, the rand weakened further due to slightly lower-than-expected Q2 GDP growth in South Africa, closing at R17.97 on Tuesday, as markets also awaited US employment data later in the week.
Upcoming market events
Wednesday, 4 September
- ZAR – Business confidence
- USD – JOLTs job openings
Thursday, 5 September
- ZAR – Current account
- USD – Non-manufacturing ISM report
Friday, 6 September
- ZAR – Foreign exchange reserves
- USD – NFP
- USD – Unemployment rate
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