Africa ( Europe Brief News): The South African rand traded flat in volatile markets Thursday as investors weighed U.S. economic data and political upheaval after a minister’s removal.
The rand was trading at 17.7325 vs the dollar at 1432 GMT, which was about where it was at the end of Wednesday.
According to a media source, U.S. President Donald Trump contemplated appointing and announcing the replacement of Federal Reserve Chair Jerome Powell by September or October in an attempt to weaken Powell’s position, which caused the rand to appreciate nearly 1% against the dollar.
However, it later declined in value against a strengthening dollar and following the dismissal of South African President Cyril Ramaphosa, a DA leader, as deputy trade minister, according to Shaun Murison, senior market analyst at IG.
Murison continued by saying that the rand’s volatility was further exacerbated by Thursday’s announcement of higher-than-expected U.S. core inflation figures.
Reuters polled economists who predicted that producer inflation would drop from 0.5% in April to 0.7% annually.
Separately, the South African Reserve Bank reported in a quarterly bulletin that, despite a 56% increase in inflows, outflows of foreign direct investment increased by 61% on a quarter-over-quarter basis in the three months ending March 31.
The Top-40 index (.JTOPI) of the Johannesburg Stock Exchange opened a new tab with a 0.8% gain.
The yield on South Africa’s benchmark 2035 government bond increased 3 basis points to 9.955%, making it less strong.
How will US data influence the South African rand’s future volatility?
According to research, rand volatility is largely influenced by unforeseen US economic data releases, including job reports, inflation data, and Federal Reserve policy signals. On the other hand, the swings of the rand are less affected by economic surprises in South Africa.
Global capital flows are impacted by changes or expected changes in US interest rates, which are frequently indicated by inflation data and minutes of Fed meetings. Increased US interest rates often draw capital into dollar-denominated assets, bolstering the US currency and driving the rand lower.
Global risk sentiment can be raised by strong US economic data, but if it raises expectations of a protracted Fed tightening, capital flight may cause emerging market currencies, like the rand, to depreciate.
