Last week the Rand and other EM currencies enjoyed the weaker US dollar as risk sentiment turned in favour of EM’s due to global optimism regarding the COVID pandemic. Global stock markets are also heading in a northern fashion as stimulus packages from Central Banks enter markets and these flows looking for yield. EM markets are of the few places still offering yield. Thus the Rand strength is two-fold.
However, on the other end of the spectrum, we have seen the Gold price hitting 8-year high on the back of some investors’ uncertainty to the fallout of the COVID pandemic. This dichotomy in the market can only give rise to uncertainty and result in some volatility in the market, and the Rand could be trading like a yo-yo, depending on which side of the risk-sentiment see-saw we find ourselves.
Last week, with no significant economic data from the US or any place in the world, we experienced sideways trading for most of the days. This week, however, is packed with more important economic data. US manufacturing figures will be released on Wednesday and Thursday, and as always we have initial US jobless numbers on Thursday. Following the numbers from May and June, this week’s stats will need to continue to impress. Expect any disappointing numbers to test the market’s optimistic outlook on economic recovery.
The ECB monetary policy decision is on Thursday, and it could be a critical meeting for the ECB, as the markets are looking for more support from them. However, with discord between some ECB members, it could be an interesting meeting.
COVID will still be leading headlines this week as we enter the second wave of infections in certain countries around the world. The number is quite stark in the US, and we have seen President Trump coming under attack for his handling of the pandemic, and this could disrupt markets should the sentiment sour in the US. Speaking of President Trump, we have seen that he has ruled out the second phase of the trade agreement with China. This might cause some jitters in the markets.
Our local currency will be at the mercy of global market sentiment. As indicated earlier in the article, there are opposing forces in the world economy, which could lead to more volatility for our currency. Our view is that the Rand will still trade in its broader R16.65 / R17.10 range, but with more volatility than last week.