Pound to Rand Fluctuates, USD/ZAR Falls from 2-Week High after Inflation Report

Before the release of South Africa’s inflation data the Rand was struggling against peers like the Pound and US Dollar.

The Pound to Rand (GBP/ZAR) exchange rate advanced as investors reacted to upbeat UK retail sales figures and the Rand slid to its lowest level for two weeks against the US Dollar.

Concerns regarding global economic growth and the ongoing local mining strike also kept the Rand under pressure.

Meanwhile, investors were adopting a cautious stance in order to safeguard their investments ahead of the release of Federal Open Market Committee meeting minutes.

While the minutes are broadly expected to be dovish in tone and advocate long-term low-interest rates, economists haven’t entirely ruled out a shocking development and are avoiding higher-risk assets as a result.

However, as local trading progressed the Rand pared declines in response to domestic inflation figures.

South Africa’s inflation report showed a 0.5 per cent monthly gain in April, and a 6.1 per cent yearly advance.

This followed an annual reading of 6 per cent in March.

Core inflation held at 5.5 per cent.

The acceleration in inflation took consumer prices above the South African Reserve Bank’s 6 per cent target and supported the argument for the central bank introducing an interest rate hike when it meets tomorrow.

Before the inflation figures were released Nedbank Group Ltd commented that; ‘Our baseline scenario is that rates will be kept on hold at this meeting, but that the risk of further rises as inflation moves above the 6 per cent upper target limit is significant.’

After investors had a chance to digest the report and its potential rate increase implications, the GBP/ZAR pairing shed 0.05 per cent but was still higher on the day.

The US Dollar to Rand (USD/ZAR) exchange rate dipped from a high of 10.4750 to 10.3985.

Later today the FOMC minutes could have an impact on the Rand.

As the Rand is a commodity-driven asset investors will also be taking an interest in China’s HSBC manufacturing PMI.

If the index reveals that the pace of contraction in China’s manufacturing sector slowed in May, higher-risk currencies like the Rand could be boosted.

Of course, eyes will also be drawn to the UK’s GDP figures and the SARB’s rate decision, taking place at 02:00 GMT.