ZAR Forex Report: Buy the rumour, sell the fact

Contrary to popular belief, lower inflation is not always a Rand positive

May 30, 2017

The North Coast Courier 2 minutes read

Last week saw a textbook example of the phrase “buy the rumour, sell the fact” as the Rand appreciated on rumours that Jacob Zuma would be reprimanded at the ANC NEC meeting, which started on Friday.

After opening last week Tuesday at 13.30 against the USD, the ZAR traded to a 4 week low of 13.01 as rumours of the removal of the president started doing the rounds.

The hope carried forward to Wednesday as the ZAR closed the day’s trade @ 12.88, after opening at 13.10.

Also out on Wednesday was the latest CPI report, which showed good news for consumers in that inflation was down to 5.3% in April 2017 from 6.1% in March 2017. This is the lowest rate since December 2015.

Contrary to popular belief, lower inflation is not always a Rand positive as it could be seen as a reason for the Reserve Bank to lower interest rates.

Lower interest rates in turn could reduce the amount foreign investments into SA, or demand for ZAR and therefore put pressure on the local currency.

The ZAR followed global factors as it awaited news from the ANC meeting over the weekend and the SA Reserve Bank kept interest rates unchanged. One could argue that had it not been for political risk, we would have seen a rate cut, but in all honesty – what is the point.

Global factors were at a minimum, given the G7 meeting and the media’s focus on Trump’s handshakes.

The ZAR opened the week at 12.85 against the USD as President Zuma survived and the market seemed unsure exactly what that means – is he stronger or weaker than before? With Monday being a US and UK bank holiday, trade remained thin during the day. On Tuesday we saw some of the Rand “hope strength” diminish as the currency started unwinding its profits.

The Rand is still seeking direction after the weekend, but we can expect it to start unwinding the 2 – 3% gained last week.

Look out for US personal income and Eurozone inflation tomorrow, followed by President Zuma in parliament on Wed and Thursday. On Friday, the big one – US non-farm payrolls for May.