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Pound South African Rand (GBP/ZAR) Exchange Rate Falls as ZA Records First Current Account Surplus in 17 Years

July 2, 2020 - Written by John Cameron

Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Slumps on Upbeat ZA Trade Balance

The Pound Sterling South African Rand (GBP/ZAR) exchange rate edged -0.4% lower today, leaving the pairing trading at around R21.1595.

The South African Rand rose on Thursday as investors were optimistic after a report suggested a coronavirus vaccine being developed by German biotech firm BioNTech and US giant, Pfizer has shown potential during the early stages of human trials.

Although, gains were largely limited as markets awaited the release of the latest US jobless and non-farm payrolls.

Meanwhile, the Rand edged higher today after data showed the country recorded its first current account surplus in 17-years during the first three months of 2020.

South Africa’s central bank showed the trade balance more than doubled. The current account saw a surplus of 1.3% of GDP, up from a deficit of 1.3% of GDP in the last three months of 2019.

This boosted the Rand as the last recorded surplus was in the first quarter of 2003.

In a statement, the South African Reserve Bank (SARB) said:

‘With the domestic lockdown restrictions only effective as from late March, the effects of the COVID-19 pandemic on South Africa’s imports and exports were still limited in the first quarter of 2020.’

Sterling (GBP) Struggles as UK Heads for ‘Extreme Brexit Crunch Point’

The Pound struggled to make gains against the South African Rand as the risk-off mood boosted riskier assets.

Sterling was driven largely by a weaker US Dollar (USD), although this did little to boost the GBP/ZAR exchange rate.

Investors continued to assess the likelihood of Britain signing a trade deal with the European Union by the end of this year.

This month is going to be crucial for the British currency as it will become clear whether the country will be able to reach a deal with Brussels.

According to Stephen Gallo, European head of FX strategy at BMO:

‘The second to last week and the last week of July are going to be the extreme Brexit crunch point.

‘If there’s not movement by the week of 20th or the week of 27th, that maybe the second wave of selling in Sterling.’

Sterling struggled to make gains as risk appetite increased ahead of this afternoon’s US jobless and non-farm payrolls.

Traders nervously awaited the latest data which is expected to show the United States added around three million jobs to the economy last month.

Although, with the estimates varying wildly, this limited gains in riskier assets such as ZAR. This also comes as markets worry about whether the world’s largest economy can sustain a recovery despite the surge in coronavirus cases.

Vishnu Varathan, head of economics at Mizuho Bank in Singapore said:

‘Any reasonable reaction to this number must also price in the resurgence in cases. A shortfall, particularly even one that may be mildly negative, would quickly reinforce the shadows of doubt being cast on plans for unfettered re-openings.’

Pound Rand Outlook: Will Upbeat US Jobs Data Boost ZAR?

Looking to this afternoon, upbeat US jobs data could boost the South African Rand (ZAR) against the Pound (GBP).

If data supports arguments that the US economy will be able to sustain its fragile economy despite rising coronavirus cases, the Rand will make further gains.

Commenting on this, Stephen Innes, strategist at AxiCorp stated:

‘A better-than-expected outcome could go some way to settling the near-term debate that the US labor market will heal relatively quickly and justify new highs in US equities.’

Meawhile, Sterling could suffer further losses on Friday if both UK consumer confidence and June’s services PMI disappoint.

If confidence does not rise as high as expected and the service sector continues to contract at a fast pace, the Pound South African Rand (GBP/ZAR) exchange rate will slide further.

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