Rand Report: Emerging markets get hit hard by global data

The US economy shrank by 32.9% last quarter which amplified the risk of sentiment that was already present and damaging most emerging market currencies.

The rand opened strong last week, gaining about 0.8% on Monday, but the strength was not long lived as a wave of risk of sentiment hit the market, damaging most emerging market currencies. The risk of sentiment grabbed the market on Tuesday as concerns over the pandemic’s effect on major economies began to increase, and not to mention the concerns over the amplification of tension between the US and China. 

The effect of the pandemic was seen when the negative GDP data for the US was released, which has confirmed that the US is in a recession. The 32.9% contraction was the largest contraction the US has experienced in history. The USD has depreciated against every major currency since the 17th of July and the uncertainty has dragged most emerging market currencies with it. The USD experienced its worst month in a decade, losing over 5% against the pound in July. Investors have been fleeing towards safe havens such as gold and cryptocurrencies. Gold hit a record high yesterday, nearing $2,000 per ounce.

The rand lost about 4.6% against the pound and approximately 2.4% against the dollar last week, closing the week at R22.34 to the pound and R17.05 to the dollar. The new week has not been kind to the rand as the rand hit a two-month high against the pound yesterday at R22.62 to the pound, and a one-month high against the USD at R17.35 to the greenback.

Market event calendar

Wednesday 5 August

• Canada Balance of Trade June: Expected at CAD-1 billion
• US Balance of Trade June: Expected at USD-50.7 billion

Thursday 6 August

• Great Britain BoE Interest Rate Decision: Expected at 0.1%

Friday 7 August 

• Germany Balance of Trade June: Expected at EUR 1.4 billion
• US Nonfarm Payrolls July: Expected at 2.2 million