The Rand loses ground ahead of

The Rand loses ground ahead of inflation results

The Rand closed strongly last week Friday at 16.899 and 13.15 against the Pound and US Dollar respectively.

The Rand loses ground ahead of

However, the Rand lost these gains at the start of the week when it opened on Monday morning at 17.01 against the Pound and 13.22 against the US Dollar. Even with this weakness, the Rand is still trading in the broad range it has been in for most of the last quarter.

Last week’s strong Rand was triggered by traders looking for higher yields using carry trades. This method involves the exploitation of the interest differential between nations. The trader borrows funds from the currency with the lower interest rate and lends funds in the currency with the higher interest rate. South Africa’s interest rates are on the high side when compared to other viable investment destinations.

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This week’s weakness can be attributed to South Africa’s upcoming inflation results that are to be released on Wednesday morning. Analysts have forecasted a drop in the year-on-year inflation rate from 5.1% to 4.7%. A lower rate would encourage the SARB to lower interest rates, which may land up being Rand-negative.

The Rand’s poor performance was further compounded by cautious trading as traders look to the Jackson Hole Economic Policy Symposium for trading indicators. This is a forum for the heads of major central banks around the world to come together and discuss global economic policies. The symposium starts on Thursday.

What to look forward to this week:

Day What’s happening Why it’s important
Wednesday South African CPI A high reading is seen as positive for the Rand, while a low reading is seen as negative.
Thursday UK Gross Domestic Product YoY Q2 Generally speaking, a rising trend has a positive effect on the GBP, while a falling trend is seen as negative.
Friday Jackson Hole Symposium It is a forum for central bankers, policy experts and academics to come together to focus on a topic.
ECB President Draghi Speaks at Jackson Hole Symposium If he shows a hawkish outlook, that is seen as positive for the EUR, while a dovish outlook is seen as negative

– Divesh Govender

 

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