South African Rand News

The local market results remain mixed this past week, with the JSE having its worst day in nine months on Thursday. Markets were awaiting the release of the Fed minutes to see if there would be any changes to the current monetary policy. What is clear now is that growth expectations may need to be revised.  A month ago, everyone was talking about the US economy growing by 8%-10%, but in reality, that figure looks more like 6%.

On the lockdown front, South Africa’s move to an adjusted level 4 lockdown will undoubtedly continue to hurt our economy. Many sectors will be affected by the current lockdown restrictions. It’s a shame as the economy has produced stronger-than-expected results over the first half of the year. This sort of performance is unlikely to continue! How can it when the country’s fiscal situation is in such a state. If anything, this will put more pressure on the rand going forward than anything else.

Unfortunately, given the progression of the third wave since the measures were announced, we think it is likely that all of the current restrictions will be extended.

Gold might help support the local markets with more positive sentiment resulting from rising uncertainty which so far has helped the precious metal trade near its three-week high. Remember that gold is regarded as a safe haven asset, which means that an increase in uncertainty forces investors to turn to gold to hedge their risk.

US Dollar News

The US dollar took a bit of a knock-on Wednesday, after the release of the latest minutes from the Federal Reserve’s latest policy meeting. The minutes showed that policymakers sense some trepidation and uncertainty over how quickly the US economy will recover. This supports the view that US interest rates will more than likely remain unchanged for the foreseeable future.

Euro News

The shared currency managed to hold its ground this week against the greenback after the ECB announced a new monetary policy strategy on Thursday.

In its first strategy review since 2003, the ECB adopted a 2% inflation target over the medium term, compared to the previous below but close to a 2% inflation target.

The Eurozone is expected to expand at 4.8% in 2021, and 4.5% in 2022. This is higher than the estimate released in May of 4.3% and 4.4%.

EUR/ZAR interestingly still holding a downward channel, primarily based on the EUR losing ground against the USD.  This might not hold next week and we could see a break out of the channel upwards.

USD/ZAR Currency Outlook