ZAR Forex Report

There is not a lot to be said that has not already been said regarding the UK’s decision to exit the EU.

Panic struck and markets crashed in the uncertainty that followed and still remains…
While Brexit is the first and obvious news item on everyone’s list, there are also one or two other factors that played a small part, albeit completely overshadowed, in the markets last week. On Thursday the Rand actually strengthened for the 5th straight day on what is now irrelevant Brexit hopes. Another contributing factor in the stronger Rand was that inflation slowed down to 6.1 % – almost in line with targets.
In the US, the Fed remained dovish which further helped the ZAR.

Of course the above is pretty much immaterial, given the Brexit result and the effect it had on the market:

• Almost $4 trillion ($ 4,000,000,000,000) wiped off the value of global equities
• GBP plunged to weakest levels since 1985 and Euro suffered biggest drop since introduction
• ZAR fell almost 8% against the USD to 15.60 after opening at 14.57 on Thursday
• Johannesburg gold index jumped 11%
• PM David Cameron resigned, UK’s credit rating downgraded

Adding to the uncertainty is that it was not an economical decision, but a political vote that drove the UK to leave the EU – early reports show that since the vote, there has been a number of violent attacks on migrants in London as UK Nationalism spreads. Could this spill over to other countries and are we seeing the end of the EU altogether?

Emerging markets, the ZAR included, took an absolute hammering as investors opted for the safe havens of USD and gold. Markets remained volatile as the GBP and ZAR strengthened on Monday morning, before the selloff continued. The Rand’s slight saving grace is that net inflows on Friday stood at around R 4.2 billion as investors bought gold and gold stocks. This trend continued on Monday as investors bought stocks of around R 2.4 billion.

Emerging market assets and currencies strengthened slightly on Tuesday morning as South Korea and Japan stimulus measures helped ease investors’ concern that the Brexit will result in slow global growth. As a result, the Rand appreciated as much as 2.1 percent against the USD to 15.13.

While there are a number of important meetings and data this week such as UK GDP, China manufacturing data and Eurozone unemployment rate, expect the market to remain volatile as it deals with its biggest hangover in 50 years.

And finally, spare a thought for the English. Last night at the Euro 2016 Football championship they lost to Iceland, a country with less inhabitants than England has football players. This makes England the first country to ever leave the Euros twice in less than one week.

Have a great week.

ZAR FOREX RATES
USDZAR = 15.2288
GBPZAR = 20.2801
EURZAR = 16.8573
AUDZAR = 11.2737
NZDZAR = 10.7689
CADZAR = 11.7274
CHFZAR = 15.5523

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