US jobs data on Friday could cause major swings in the high-achieving rand on Friday, with an analyst seeing the rand moving between R13.55 and R14.00 to the dollar.
This comes as the rand remained at levels last seen in October last year on Friday, as elections continued to show the ruling African National Congress (ANC) losing favour in South Africa’s urban areas and after the UK cut key rates on Thursday amid an economic fall-out resulting from its vote to exit the EU.
The rand reached a low of R13.67/$ on Friday, and traded at R13.68 by 10h20 on Friday morning. It was also trading at R17.97 to the pound and R15.26 to the euro.
“The rand went out on its own yesterday morning outperforming all of our emerging market peers and further gains in line with risk assets are on the cards if global liquidity remains or even extends further,” Wichard Cilliers, head of dealing and director at TreasuryOne, said on Friday.
“The rand gained against all majors, either because the market was happy about the election outcome or the (Bank of England) BoE’s delivery,” said RMB analyst Isaah Mhlanga on Friday.
“It’s difficult to tell, but it’s all good,” he said. “South African politics will never be the same again.”
Even though South Africa’s democracy is relatively young, Umkhulu Consulting’s Adam Phillips believes “we have shown the world that we have an excellent constitution”.
“The results have shown that democracy does work and even though the votes in some areas are too close to call, the Democratic Alliance (DA) and EFF have given the ANC a bloody nose,” he said on Friday.
The DA looks set to take Port Elizabeth from the ANC, while retaining Cape Town in the elections, with possible coalitions expected to emerge in Tshwane (Pretoria) and Johannesburg, where the DA and ANC are neck-to-neck.
“The elections are certainly heating up in the main metros as coalitions look like the likely way forward, and many smaller parties are set to become king-makers as parties with the bigger share of the votes, court their alliance,” said Cilliers.
The BoE tried to cushion the UK economy from the impact of the Brexit vote, by cutting its bank rate from 0.50% to 0.25%, adding £60bn in new stimulus and £10bn corporate bond purchases, and announced a new term funding scheme to provide cheap funding to banks, explained Mhlanga.
“This is a continuation of global central banks’ willingness to boost confidence and support economic activity,” he said.
Cilliers sees the rand trading between R13.55 and R14.00 on Friday, “with large swings possible at 14:30 when the US jobs data comes out”, he said.
The US labour market will be in focus when the non-farm payrolls number and other vital jobs data is announced. “The market needs to believe that the significant bounce back in July is sustainable and that the May number was truly an outlier,” said Cilliers.
“To buy into the US Fed’s constant beating of the potential rate hike drum, we would need another strong number accompanied by an improvement in other sectors of the US economy. A weak number would further dent aspirations of a US interest rate hike this year.”
“The bias should be to the lower side though as the positive sentiment from the local elections and the rate cut from the BoE continues to filter through,” he said.
However, with the European holidays in full swing, Phillips said “this could cause some interesting volatility”.