Rand stays in its range despite positive US non-farm print
Last week, the rand flirted with the R14.50 level as the market awaited the US non-farm payroll number, and the number did not disappoint in terms of the actual number (850k vs 720k expected). The higher than expected number would typically cause the rand and other emerging market currencies to weaken, but in this instance, we saw the rand heading in the other direction after release.
Digging deeper into the detail, the primary reason for the reaction was that US unemployment numbers rose to 5.9% from 5.6%. It could be down to some states starting to curb their COVID relief cheques, and more people are entering the job market, or that employers are struggling to fill positions. We have already seen a lot of US companies raising salaries to attract workers. This will also place upward pressure on inflation, which will result in the Fed intervening at some stage.
The market’s not paying much attention to anything else except the US dollar and data from the US. We’ve seen the US dollar trading almost to 1.18 against the Euro in the past week as the market is anticipating the days of free money drawing to an end. The 1.18 level is a key level to watch on the EURUSD, with a close below this level opening the way up back to 1.16. This will make Wednesday’s FOMC minutes the most significant event on the calendar this week. The market will look closely for any indication from the Fed sounding more hawkish on starting the taper of QE.
On the local front, the two main concerns are the political situation and the COVID third wave currently raging in the country. With stricter lockdown, it will be only a matter of time before it will negatively affect our economy. A marriage of a tumultuous political situation and stricter lockdowns could hamper the rand in the future the longer it plays out. However, for the moment, all is still relatively quiet.
We expect a slow start to the week with the US out of the market celebrating its Independence Day yesterday. Expect a flurry of activity after the US Fed minutes, but for the most part, we believe that the rand is currently very stable in the R14.00/50 range, and we need an event to pull it out of the range. The R14.50 level can possibly hold for now, with the USDZAR continuing in the downward trend. A weekly close above R14.50 can change the picture, but the USD market will dictate the direction.