In the absence of significant local data, the South African rand was moved mostly by global factors.
The most notable event last week was the US inflation rate print, which was released on Thursday. The US inflation rate came in at 7.7% for October, which was lower than the expected 8.0% reading. This was the fourth consecutive month in which inflation has slowed in the US. Additionally, inflation is now the lowest it has been since January.
This data event was the catalyst for a violent USD selloff. The Dollar Index (DXY) fell by a whopping 4.15% last week. The USD/GBP and USD/EUR pairs had a similar price action and depreciated by 4.06% and 3.96% respectively.
The easing of price pressure highlights the Federal Reserve’s progress towards curbing inflation. If inflation continues to cool, the Fed might pull back on the aggressive rate hike cycle experienced over the past few months. Equity markets digested this favourable news, and the S&P 500 Index gained 5.90% last week. The NASDAQ Composite made an even more pronounced move to the upside, soaring by 8.10%.
The rand was able to recover from its previous losses against the US Dollar because of this economic data. Consequently, there was a dramatic decline in the USD/ZAR pair last week. After opening at R18.01 on Monday, the pair moved 3.63% lower and ended the week around the R17.25 level.
However, the ZAR could not gain ground against other developed-market currencies, which appear to be benefiting from the rotation out of the USD. The GBP/ZAR pair ticked upwards by 0.60% during weekly trade, moving from R20.26 to R20.50. EUR/ZAR made a similar move, appreciating by 0.56% from an open of R17.75, before closing at R17.85.
This week, the focus will be on the market’s reaction to the USD’s weakness. The ZAR is likely to remain in the hands of macroeconomic sentiment, and the corresponding flow of funds throughout the global financial market.
For global data, the US Producer Price Inflation (PPI) will be released today, 15 November. This leading indicator of future inflation will help markets to gauge the persistence of current inflation and determine whether the recent cooling will continue. Further declines in price pressure could lead to additional losses for the greenback.
Furthermore, the UK inflation rate data will be released on Wednesday. Inflation is expected to increase towards 11% and hit new multi-decade highs. If this does in fact take place, it is likely to cause concern for many economists. The health of the UK economy may be called into question if this high-inflation environment continues.
The UK unemployment rate will be released today. The unemployment rate is expected to remain around 3.5%. Any surprises here will likely lead to a corresponding move for the sterling.
For local, we have the South African retail sales growth figures for September will be released on Wednesday. Markets are anticipating a month-on-month contraction of 2.1%, a rather bleak outlook for the growth prospects of the country.
Upcoming market events
Tuesday, 15 November
GBP: Unemployment rate (September)
GBP: Claimant count change (October)
USD: Producer Price Index (October)
AUD: RBA meeting minutes
Wednesday, 16 November
GBP: Inflation rate (October)
USD: Retail sales (October)
ZAR: Retail sales (September)
Thursday, 17 November
AUD: Unemployment rate (October)
USD: Housing starts (October)
GBP: UK autumn statement
Friday, 18 November
GBP: Retail sales (October)
USD: Existing home sales (October)
ZAR: Building permits (September)
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