Decidedly Mixed Outlook for South African Rand ZAR

December 15, 2015 - Written by Minesh Chaudhari

STORY LINK Decidedly Mixed Outlook for South African Rand ZAR

GBP to ZAR Exchange Rate Broke Through 24.0000 Last Week

The South African Rand (currency : ZAR) endured the ‘session from hell’ last week as a combination of domestic political turmoil and the continued slump in global commodities prices sent the Pound Sterling Rand exchange rate spiralling through the 24.0000 GBP ZAR threshold for the first time in modern history.

Commodity Index Continues to Plummet Weighing on ZAR Demand

The closely-monitored Bloomberg Commodity Index had been trading at above the 100 threshold as recently as the first week of July and had been at above the 175.00 level during the first half of 2011. However, the index has plummeted since mid-summer – a move which culminated in the drop to as low as 77.20 yesterday.

The shift out of raw materials by investors has been driven by a dramatic softening in the tone of data emanating from the world’s second largest economy – China – during the past six months. The suspicion remains amongst analysts that the true level of Gross Domestic Product growth in the world’s leading emerging market economy stands at closer to 4.5% than the 7.0% which the nation’s leaders continue to insist is the case and this fear has triggered the sharp drop in commodities prices.

Levels of support for the export-driven South African Rand have plunged in the markets as a consequence, and with futures markets pricing-in a near 80% likelihood that US interest rates will be heading higher tomorrow evening, there could be further downside to come for the Rand.

Backtracking President Zuma sees Rand Recover Some of its Losses

However, yesterday’s session brought a rare piece of Rand-positive news; the Southern Hemisphere nation’s President Jacob Zuma rocked the markets last week by announcing that he was sacking Finance Minister Nhlanhla Nene who had been well-liked by investors for his implementation of tough austerity measures.

Zuma’s decision to replace Nene with unknown and inexperienced David van Rooyen caused the Rand to slide sharply, however van Rooyen lasted only 48 hours in his post and Sunday night’s shock announcement from President Zuma that old hand Pravin Gordhan, who held the post from 2009 until last year, would once again be taking over as the nation’s FinMin, steadied the extremely rocky ship.

The markets liked what they heard and the Rand gained almost 6.0% against the Pound during early trade yesterday. However, analysts forecast that this could prove to be the calm before tomorrow’s storm.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Rand Forecasts Pound Sterling Forecasts South African Rand Forecasts