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US Dollar South African Rand (USD/ZAR) Exchange Rate Stumbles in spite of Easing Chinese Growth

January 21, 2019 - Written by Frank Davies

Slowing Chinese Growth Fails to Boost US Dollar South African Rand (USD/ZAR) Exchange Rate

News that China’s economy lost further momentum in the fourth quarter of 2018 was not enough to shore up the US Dollar to South African Rand (USD/ZAR) exchange rate.

As the Chinese gross domestic product eased from 6.8% to 6.6% the world’s second largest economy experienced its weakest annual growth in 28 years, boding ill for the wider global outlook.

Although market risk appetite generally declined in the wake of the disappointing data the South African Rand was able to hold onto modest gains against the US Dollar.

While the South African Rand remains vulnerable to weaker global growth and softer commodity prices this failed to drive the USD/ZAR exchange rate higher at the start of the week.

Market Risk Appetite Fails to Shore up US Dollar (USD) Exchange Rates

Even with safe-haven demand on the rise the mood towards the US Dollar proved rather bearish on Monday, leaving USD exchange rates on a generally weaker footing.

Markets continue to see little chance of the US-China trade dispute seeing a conclusion in the near future, in spite of the latest comments from the White House.

With the US economy not immune to a global slowdown, and with domestic data already showing signs of softness, demand for the US Dollar eased.

Worries over the ongoing partial government shutdown also limited the strength of USD exchange rates, with no apparent resolution to the standoff looking likely in the near future.

South African Rand (ZAR) Vulnerable to Inflation Data

Wednesday’s South African inflation data could see the USD/ZAR exchange rate recover some of its lost ground, however, if the headline inflation rate fails to ease on the year.

If inflation shows fresh signs of picking up this would increase the pressure on the South African Reserve Bank (SARB) to tighten monetary policy once again.

The prospect of another interest rate hike may weigh heavily on demand for the South African Rand this week.

However, if the inflation rate dips from 5.2% to 4.5% on the year as forecast ZAR exchange rates are likely to gain a fresh boost.

Evidence that the SARB is getting inflationary pressure under control would encourage greater confidence in the health of the South African economy, benefitting the Rand.

Rising US Jobless Claims to Dent USD Exchange Rates

US jobless claims may put additional pressure on the USD/ZAR exchange rate, meanwhile, as markets anticipate another increase on the week.

Further signs of a loosening job market could drive the US Dollar to lose further ground against its rivals.

As weaker employment data would give the Federal Reserve additional incentive to leave interest rates on hold for longer this could weigh heavily on USD exchange rates.

However, as long as the general sense of market risk appetite continues to deteriorate the downside potential of the US Dollar is likely to prove limited.
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