The return of the Rand’s volatility

This report is brought to you by Sable International

This volatility comes amid a background of geopolitical tensions between the US and Iran as well as slightly stronger emerging market currencies.

The Rand’s movement was mainly influenced by external factors such as geopolitical risk and the overall trend in emerging market economies. This is highlighted in the fact that the ZAR moved in tandem with the Turkish Lira during the early parts of last week (up to New Year’s Eve). The two currencies diverged on Friday at the news of the US airstrike killing a prominent Iranian general.

The ZAR lost significant ground on Friday as it opened at 18.69 to the GBP (from Thursday’s close of 18.52), and ranged for most of the day, breaking the GBP/ZAR 18.76 level (for the first time since 19 December). Most emerging market currencies mirrored this trend along with safe-haven assets such as gold, oil and the Swiss Franc (CHF). This is indicative of a market anticipating an increase in risk going forward.

Tensions between the US and China have simmered down during the latter part of December and are affecting markets to a much smaller degree compared to the above-mentioned geopolitical phenomenon.

It is expected that this trend will continue at least for the next week as the above tensions play out in international markets. Volatility may increase as Brexit news in the next week focuses on the deal deadline at the end of the month.

Market event calendar

Wednesday 8 January

• SA foreign exchange reserves
• SA manufacturing PMI

Thursday 9 January

• SA production data
• Chinese inflation rate

Friday 10 January

• US nonfarm payroll

Monday 13 January

• UK GDP data