With interest rate announcements from the FOMC in the United States and the Bank of England just hours away, plenty of foreign currencies stand to be swayed just as much – if not more – than the pound sterling and dollar themselves. One of those which stands to be affected the most is the ZAR (South African Rand).
South Africa announced its latest November inflation figures today on December 13th. The release showed better-than expected inflation figures, with fuel-price inflation plummeting to 1.8 percent from 11.2 percent in October.
Overall, Analysts polled by Reuters had predicted a 5.6 percent YoY drop in headline inflation on the higher end, but within the South African Reserve Bank’s preferred target range of three to six percent.
Effects on the USD/ZARJust ahead of its release, the USD/ZAR dropped to 19.0250, marginally weaker than yesterday’s close. However, the pair rebounded in the hours following the announcement, gaining more than 0.58 percent for the South African Rand to sit at 19.0860 to the dollar. This shows considerable medium-term rallying, considering that the USD/ZAR was sitting at 18.10625 at one point during November, off the back of higher-than-expected October inflation and the South African Reserve Bank holding its interest rates.
What will the coming rates announcements do to the ZAR?The Fed, BoE and ECB rates announcements this week are unlikely to hold huge surprises, with most feeling that all three agencies will hold rates. And so may begin an international game of chicken, with the world – especially developing countries – waiting to see who will be the first to cut rates going into 2024.
However, if interest rates show signs of a dovish 2024 and the rates slashing expected comes to pass, then this will likely be good for the ZAR. Citadel Global director Bianca Botes, based in South Africa, told IOL that:
The rand stands to benefit from the anticipated rate cutting cycle that is due to come into play towards the second and third quarters of 2024. One, however, needs to bear in mind the structural and peculiar risks associated with the rand, and that the rand will likely trail its peers over the medium term when appetite for emerging markets return.”
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