The South African Rand ended yet another week in the red with disappointing economic data serving as the catalyst for ZAR weakness.
South African GDP growth figures were released last week for Q4 of 2022. GDP shrank by 1.3%, exceeding the expected decline of 0.4%. This was the most drastic quarterly decline since Q3 of 2021. The downtick in economic activity can be attributed to chronic blackouts that have plagued the country.
South African business confidence fell for the fourth consecutive quarter, from 38 to 36, reaching a two-year low. Deteriorating sentiment relating to manufacturers and retailers was responsible for a large portion of the index’s decline. The constant power outages and associated slowdown in business activity have added to the downfall of business sentiment.
In the global financial markets, there was some significant US Dollar strength during the early rounds of last week. During Jerome Powell’s testimony on Tuesday, he indicated that the Federal Reserve is prepared to raise interest rates at a faster pace if upcoming data supports the need to do so.
On Friday, the nonfarm payrolls data was released, which indicated that 311,000 new jobs were added to the economy in February. This figure was well above expectations, adding to the 504,000 jobs added in January.
The healthy state of the US labour market would likely lead to greenback tailwinds, due to its impact on inflation and interest rate forecasts. However, financial panic surrounding the bankruptcy of Silicon Valley Bank (SVB) counteracted the anticipated Dollar strength. As financial market participants speculated the severity of the SVB collapse, the US Dollar relinquished its weekly gains. The USD was unable to hold onto its gains against the EUR and GBP, and the Dollar Index (DXY) ended flat.
Nevertheless, developed-market currencies were able to outmuscle the struggling South African Rand, which has continued to bear the brunt of negative local events.
The USD/ZAR pair moved northwards last week, from an open of R18.15. The pair surged 3% higher during the early rounds of trade, supported by Dollar strength, and reached a weekly high of R18.71. However, the trend reversal towards the end of the week caused the USD/ZAR pair to move below the R18.50 support level, before ending the week at R18.30.
The Rand and British Pound pair
The GBP/ZAR pair exhibited a similar price path. However, the GBP/ZAR pair experienced less volatility than its USD/ZAR counterpart. The GBP/ZAR pair climbed from an open of R21.85 to a high of R22.20. On Friday, the rate closed 0.76% above its Monday open, at the R22.00 support leve
The EUR/ZAR pair moved higher too, from an open level of R19.27, peaking at R19.72. The pair ended the week at R19.48, up by 0.96% over the week.
This week, a handful of economic data will be released. US core inflation rate data will come due, along with producer price index and retail sales data. Unemployment rate data will be released for both Australia and the UK. Over in the Eurozone, the European Central Bank interest rate decision and the updated inflation rate data will be released.
Locally, manufacturing, mining, and gold production figures are scheduled to be reported. South African retail sales growth numbers will also come due, along with consumer confidence data for Q1.
Upcoming market events
Tuesday, 14 March
USD: Inflation rate (February)
GBP: Unemployment rate (January)
GBP: Claimant count change (February)
ZAR: Gold and mining production (January)
ZAR: Manufacturing production (January)
Wednesday, 15 March
USD: Producer price index (February)
USD: Retail sales (February)
ZAR: Retail sales (January)
Thursday, 16 March
EUR: ECB interest rate decision
AUD: Unemployment rate (February)
USD: Building permits (February)
Friday, 17 March
EUR: Inflation rate (February)
USD: Industrial production (February)
ZAR: Consumer confidence (Q1)
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