Rand strengthens amid risk-on sentiment as another repo cut looms

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Last week saw the rand weaken about 1.3% against the dollar and strengthen about 1.1% against the pound. This is due to negative global sentiment sending investors towards the USD safe haven and Brexit fears scaring investors away from the pound.

The rand strength is likely brought about by risk-on sentiment as economies ease lockdown restrictions globally and the increase in the price of gold giving commodity-linked currencies a slight boost.

The South African Reserve Bank (SARB) is set to make an interest rate decision on Thursday. This comes after a 100-bps cut in March and another 100-bps cut in April. Analysts expect to once again see a 100-bps cut on Thursday, bringing the repo rate to 3.75%. This is an attempt to stimulate the South African economy, now in its eighth week of lockdown.  

The rand is likely to remain volatile for the rest of the week with the likelihood of a repo rate cut on Thursday and investors taking cues from risk sentiment.

Market event calendar

Tuesday 19 May 

• Germany ZEW economic sentiment index for May: Expected at 32
• Russia GDP growth rate (YoY) Q1: Expected at 1.8%

Wednesday 20 May

• China loan prime rate 1Y: Expected at 3.85%
• China inflation rate (YoY) for April: Expected at -0.1%

• UK inflation rate (YoY) for April: Expected at 0.8%
• Eurozone inflation rate (YoY) for April: Expected at 0.4%
• South Africa retail sales (YoY) for February: Expected at 1.4%

Thursday 21 May

• Japan balance of trade for April: Expected at ¥-480 billion
• South Africa interest rate decision: Expected at 3.75%

Friday 22 May 

• Japan inflation rate (YoY) for April: Expected at 0.2%
• UK retail sales (YoY) for April: Expected at -22.7%