Pound to South African Rand Exchange Rate on Track to Sustain Strong Gains This Week
Investors have been buying the Pound to South African Rand (GBP/NZD) exchange rate a lot this week, despite a lack of support in the Pound (GBP) outlook. This is because the South African Rand (ZAR) outlook has been throttled by weak South African growth data.
Since opening this week at the level of 18.38, GBP/ZAR saw a brief dip before surging higher on concerning South African news.
The pair has gained over half a Rand throughout the week so far, and trended relatively closely to a monthly high of 18.94 at the time of writing this morning.
Sterling may have seen even stronger gains this week if not for persistent no-deal Brexit fears weighing on the currency.
The primary causes of GBP/ZAR gains have been broad weakness in the South African Rand, following poor South African growth data, as well as market jitters over the possibility of the South African Reserve Bank (SARB) having its mandate altered.
Pound (GBP) Exchange Rate Gains Limited as No-Deal Brexit Fears Cloud Outlook
The Pound could have seen even stronger gains versus the tumbling South African Rand this week, if not for political and economic concerns keeping pressure on the British currency.
UK Brexit and political concerns continue to dominate the Pound outlook, with investors increasingly anxious that Britain could leave the EU without a deal in October – especially if Prime Minister Theresa May’s successor is a hard Brexit advocate.
Economists predict that the Pound will have much further to fall if a no-deal Brexit becomes reality, and the Pound was weaker today on no-deal Brexit anxieties.
The latest UK data has only offered the Pound limited support as well. While Britain’s key services sector beat expectations, manufacturing and construction figures both showed shocking contractions and overall Britain’s economic activity was just above stagnation in May.
South African Rand (ZAR) Exchange Rates Plummet on Growth and Central Bank Jitters
The South African Rand had seen relatively sturdy performance for much of May, as investors had an optimistic reaction to the results of South Africa’s general election.
However, hopes for uncertainties to stabilise were short-lived, as this week’s South African news led to a broad plummet in the South African Rand’s appeal.
Earlier in the week, South Africa’s Q1 Gross Domestic Product (GDP) growth rate was published and revealed a shockingly deep contraction in quarterly growth. As a result of the quarterly contraction, the yearly growth rate came in stagnant.
The data worsened concerns about the health of South Africa’s economy.
Uncertainty deepened further yesterday, amid news of a row over whether or not the South African Reserve Bank (SARB) mandate should be altered to prioritise growth and employment as well as price stability.
This made markets anxious about the Central Bank’s independence, which is a valued aspect of South Africa’s economy, and the South African Rand saw further weakness.
Pound to South African Rand (GBP/ZAR) Exchange Rate Could Sustain Gains
Despite the Pound’s weakness on the back of Brexit and economic fears, the South African Rand’s broad weakness this week may not reverse any time soon.
The only notable data due for publication before the end of the week will be South Africa’s May foreign exchange reserves tomorrow morning, which is unlikely to be particularly influential.
This will leave Pound to South African Rand (GBP/ZAR) exchange rate investors anticipating potential political developments, both in the UK and in South Africa.
Any surprising news or speculation on the UK leadership contest or on Brexit would influence Sterling, while the Rand may be driven by developments on the South African Reserve Bank (SARB) row.
As the South African Rand is also correlated to market risk and trade sentiment, changes in US trade tensions would also influence the Pound to South African Rand (GBP/ZAR) exchange rate.