South African Rand (ZAR) Exchange Rate Loses Ground after Economy Contracts
The South African Rand softened against both the US Dollar and Pound after South Africa’s re-elected President Jacob Zuma announced his cabinet.
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To the surprise of some investors, Zuma replaced Pravin Gordhan as finance minister, choosing to instate Gordhan’s deputy Nhlanhla Nene.
Some investors viewed the new cabinet as ‘less business-friendly’ than hoped for and the Rand consequently declined against several of its major rivals.
The Rand came under additional pressure on Tuesday following the publication of South African growth data.
Before the figures were published the Rand was holding steady.
It was expected that domestic strains would see South Africa post first quarter contraction of 0.2 per cent in the first quarter of the year, down from quarterly growth of 3.8 per cent in the final three months of last year and the first quarter of contraction since 2009.
As Barclays Africa noted; ‘The strike in the platinum sector and its knock-on effects on both downstream and upstream manufacturing industries saw both mining and manufacturing production contract for the first quarter of this year.’
However, the growth data fell short of expectations, showing quarter-on-quarter contraction of 0.6 per cent.
The economy was up 1.6 per cent on the year, down from an annual increase of 2 per cent in the fourth quarter of 2013.
Statistics South Africa’s growth report showed that the major contributors to the decrease in economic output were the manufacturing, mining and quarrying industries.
The Rand shed almost 1 per cent against the US Dollar after the data was released and was struggling against a fairly static Pound.
The Pound was little changed after separate reports revealed a decline in UK BBA mortgage approvals and an impressive increase in a measure of UK consumer business confidence.
The Confederation of British Industry’s optimism measure rallied to a record high of 53 in the first quarter of the year, up from a previous reading of 43.
As the week progresses other South African data to be aware of includes domestic PPI (out on Thursday) private sector credit figures and balance of trade data.
News from the US, Eurozone and China will also impact the Rand in the days ahead.
US durable goods orders, German unemployment figures and China’s leading index will be of particular interest.
The GBP/ZAR pairing could also be moved by the UK’s GfK consumer confidence measure.
The Rand is currently trading against the US Dollar in the region of 10.3530 and trading against the British Pound in the region of 17.5466.