The South African rand has experienced a rollercoaster ride this week sparked by an address by the South African Reserve Bank (SARB) Governor Lesetja Kganyago at Stellenbosch University. In his speech he raised concerns around inflation targeting which he believed should be lowered from the current 3% – 6% to 3% – 4%. A few key excerpts from his speech include:
“if we want to keep interest rates low, the most important thing we can do is to lower the inflation target.”
“As I have argued previously, a more appropriate target would be a point target of around 3% or 4%, putting us in the same territory as our peers.”
ECONOMIC DATA FAVORS USD DESPITE RECORD CURRENT ACCOUNT SURPLUS
Yesterday opened up with positive news for ZAR bulls as the current account surplus reached historical highs which exceeded analyst forecasts.
Soon after, manufacturing data printed poorly and missed both MoM and YoY estimates. This quickly stemmed from the rallying rand which was further provoked by the initial jobless claims announcement – a major point of interest for the Federal Reserve. The Fed speeches from Bowman and Williams respectively may add more color to the taper situation especially after better than expected jobs data yesterday.
The South African rand had a relatively successful month in August. After falling against the US dollar initially, the currency rebounded as investors started to price in a strong rebound of the South African economy. Besides, the protests that happened in July ended and more businesses started reopening.
Still, the country’s economy is struggling, with the unemployment rate being at more than 34%. In fact, the total unemployment rate, including people who have given up on work, has increased to more than 40%. At the same time, consumer prices are rising, as major inputs rise.
Another main challenge is that a new variant, known as C.1.2 has emerged from the country. This variant has puzzled scientists because its mutations are similar to that of the Delta variant. Therefore, this new wave could have a major impact on the country’s recovery.
USD/ZAR Short (Sell)
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