The week ahead will be an important one for the rand, with the South African Reserve Bank setting rates, notes Wichard Cilliers, director and head of dealing at TreasuryONE.<\/p>\n
South Africa Reserve Bank starts its three day monetary policy committee meeting\u00a0 on Tuesday (to July 19), and is expected to keep lending rates steady at 6.5%, according to a Reuters poll.<\/p>\n
All 25 economists surveyed in the poll in the past week said the Reserve Bank would keep rates unchanged.<\/p>\n
A clearly less \u2018dovish\u2019 resolve of the bank has been seen in recent years, with less rate cuts being seen despite what remains structurally weak growth dynamics, said Cilliers in a daily note on Monday.<\/p>\n
“High real interest rates constrain economic activity by reducing the propensity for excessive credit extension by the banks and credit demand by households. Loose policy on the other hand can lead to imbalances within the economy \u2013 imbalances that are often well reflected in the current account, and in consumption dynamics within the economy.<\/p>\n
“The SARB has maintained a relatively tighter monetary environment, despite moderating inflation pressures and the kind of weak growth that would have seen more rate cuts in previous cycles,” the analyst said.<\/p>\n
TreasuryONE highlighted that the 3-month Jibar rate now sits over 250bp above the current level of inflation and money supply growth in the economy has been much softer in response, albeit against the confluence of:<\/p>\n
“These factors suggest that trade dynamics should remain in relative balance, with the lower period of growth in the retail sector a tell-tale sign of an economy that is seeing a more prudent consumptive environment.<\/p>\n
“The market will therefore have a lot to digest this week, with the consumer price index for June as well as retail sales for May on the card as core barometers of what has been described above,”\u00a0Cilliers said.<\/p>\n
The SARB is expected to maintain rates despite the weaker growth environment, “and we believe that this will maintain a more resilient environment for the rand,” he said.<\/p>\n
“The rand has made decent gains on a month-to-date basis, rising against the vast majority of currencies. From a technical perspective note that stochastic indicators are now moving into the oversold position for the USD-ZAR, which suggests that downside potential is moderating.<\/p>\n
“With the SARB rate decision looming this week, alongside some significant data domestically and internationally, investors could seek to square positions into the start of this week. Nevertheless the rand is still trading quite resiliently,” TreasuryONE said.<\/p>\n
The R13.20\/25 region remains a significant support base with a break below bringing the big R13.00 level into view, with the R12.80 level likely to be significant,” Cilliers said.<\/p>\n
In morning trade on Monday, the rand was on the front foot against the major currencies:<\/p>\n
Bloomberg meanwhile reported that emerging markets could face renewed pressure, with the twists and turns of US-China trade tensions likely to dominate investor concerns this week.<\/p>\n
Emerging-markets have become trickier to navigate as investors brace for outsized volatility, Bloomberg said.<\/p>\n
“We remain concerned that the vicious cycle of tit-for-tat tariffs may accelerate in the coming weeks,” said Piotr Matys, a strategist at Rabobank in London. “This in turn would fuel risk aversion, leaving various emerging-market currencies particularly vulnerable against the US dollar, which continues to benefit from capital outflows from emerging markets to US assets.\u201d<\/p>\n
South Africa\u2019s statistics agency is set to publish inflation data for June on Wednesday, with the consumer price index seen rising to 4.8%, from 4.4% in May, while the rand has climbed more than 3% this month, outperforming most of its peers, Bloomberg said.<\/p>\n