South African Rand Dips Amidst Risk-Off Sentiment

The South African rand has experienced a downturn against most major currencies, marking an end to its recent rally. This depreciation is attributed to a combination of profit-taking activities and a resurgence of risk-off sentiment.

Fed Chair Powell’s Testimony

Last week, global markets were closely observing the testimony of US Federal Reserve Chair Jerome Powell, who revealed that the Fed’s pause in its rate-hiking cycle aimed to assess the effects of consecutive rate hikes implemented in the past 15 months. His statement indicated a high probability of another interest rate hike in the upcoming meeting.

US Dollar Strengthens

As a result, the US Dollar strengthened against most of its counterparts. The Dollar Index appreciated by 0.65%, with the USD gaining 0.40% and 0.83% against the Euro and Pound, respectively.

ZAR Weakens

Meanwhile, the ZAR weakened due to a shift in market sentiment, with safe-haven currencies from developed markets gaining momentum and leaving emerging-market currencies behind. The USD/ZAR pair rose 2.81% last week, while the EUR/ZAR appreciated by 2.36%.

GBP/ZAR Pair

In contrast, the GBP/ZAR pair experienced a smaller gain, rising from R23.32 to a weekly high of R23.87, and closing at R23.76 on Friday, up by 1.96%.

Inflation Rate for May

South Africa’s inflation rate for May was reported at 6.3%, lower than the 6.8% recorded in April and exceeding the expected decrease to 6.6%. This slowdown in price increases was primarily due to reduced food and beverage costs, as well as lower transportation and fuel expenses.

Impact on Interest Rate Trajectory

The ongoing easing in price pressure brings the annual inflation rate closer to the upper limit of the South African Reserve Bank’s (SARB) target and will likely impact the country’s future interest rate trajectory. Moreover, the month-to-month price pressure increased by a marginal 0.2%.

Upcoming Economic Events

This week, the South African producer price index (PPI) data is due for release, offering more insights into the state of production price pressure. The country’s balance of trade data for May, along with consumer confidence for Q2 of 2023, will also be revealed.

Global Economic Events

In the upcoming economic events, ECB President Lagarde is scheduled to deliver a speech on Tuesday, 27 June, followed by the announcement of US durable goods orders for May. On Wednesday, 28 June, Fed Chair Powell will give a speech, and on Thursday, 29 June, the ANZ business confidence data for June will be released. The same day, South Africa’s producer price index for May and consumer confidence data for Q2 will be announced. Finally, on Friday, 30 June, the Eurozone’s inflation rate flash and unemployment rate for May, along with the US personal income and spending data for May and South Africa’s balance of trade data for May, will be disclosed.