Rand report: Volatility following UK election and US-China truce

At the time of our last report, the Rand was in a weak position after Eskom implemented Stage 6 load shedding. In the UK, polls were coming in predicting the Conservatives would take a majority in the UK election, giving the Pound some solid strength as the idea of a hung parliament seemed less likely.

As the week went on, we saw some astronomical volatility in the markets, with movements in excess of 2% in a day. While these movements are common with the Rand, when it happens with major currency pairs such as the GBP/USD and GBP/EUR, it’s worth taking note of.

As the UK election day approached, market participants seemed to exit the market and take profits on election day, with the Pound dropping approximately 1.5% throughout the day.

While UK politics were playing out, the announcement came that the US and China have agreed on a “phase one deal”. News of this sent stock markets soaring as investors finally saw an end to the uncertainty plaguing global markets.

Understanding the reactionary Rand

Throughout all these global events, the Rand swung back and forth. Since the Rand is one of the most liquid emerging market (EM) currencies, whenever big news events occur it’s one of the first currencies to react, with investors buying/selling the Rand as a proxy for other EM currencies.

Tuesday’s headlines suggest Johnson wants to exit the European Union (EU) as soon as possible, while many market participants were expecting a slight delay. This has sent the Sterling down, but one should be wary of movements based on headlines as we have seen many times before.

Overall, the new week holds a few key data points. Traders should keep positions small and not overcommit to any directional trade with the information currently available.

Market event calendar

Wednesday 18 December

• UK inflation data

Thursday 19 December

• Australian unemployment data
• UK interest rate decision

Friday 20 December

• UK GDP data
• US GDP data