South African Rand (ZAR) Exchange Rate Struggling before Credit Rating Decision
While the British Pound remained 0.22 per cent higher against the Rand on Thursday, the emerging market asset was modestly supported by the news that South Africa’s mining production figures for April were better than expected.
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Given that South Africa’s platinum mining sector has been feeling the effect of an over five-month long strike and notable social unrest, a steep decline in output had been expected.
Before the report was released the Rand was trading close to a ten-week low against the US Dollar and was weaker against the Pound.
The South African currency was also struggling after Eskom, a power utility, intimated that heightened demand over the winter months was pressuring the national grid.
Furthermore, the expectation that top ratings agencies Standard & Poor’s and Moody’s Investor Service will down grade South Africa’s credit rating on Friday was also dragging the Rand lower.
Before the mining figures were released currency analyst John Cairns noted; ‘We no longer have positive global factors off-setting local negatives: suddenly both factors are playing in the same direction. Foreigners aren’t panicking but their shift from aggressive buyers to neutral is enough to leave the Rand to weaken.’
The Pound meanwhile was still riding high off yesterday’s UK employment figures and a report issued this morning showing another strong gain in UK house prices.
However, mining production actually surged by 7.9 per cent in April, month-on-month, wiping out the 5.5 per cent decline recorded in March.
On the year mining production was up 0.2 per cent, following an annual decline of 4.7 per cent.
Later today further Rand fluctuations could occur in response to the release of US advance retail sales figures.
The report is expected to detail a 0.6 per cent monthly increase in sales. A better-than-expected result would add to the case for the Federal Reserve hiking interest rates and could cause the Rand to soften further against the ‘Greenback’.
Tomorrow the UK’s construction output report could have a modest impact on the GBP/ZAR exchange rate. Construction output is expected to have increased by 1.5 per cent on the month and 2.9 per cent on the year.
As South Africa’s Rand tracks the Euro, tomorrow’s Eurozone trade figures and German inflation data will also be of interest, as will China’s industrial production and retail sales reports.
The South African Rand is currently trading against the US Dollar in the region of 10.7412 and trading against the British Pound in the region of 18.0483.