The Pound Sterling to South African Rand (GBP/ZAR) exchange rate softened early Monday to hit a session low of 17.39 as data out of South Africa beat economist forecasts.
Oil Prices aid Trade Balance
Kicking things off for the Rand’s positive movement was the publication of data last Friday, which showed that South Africa’s trade balance changed from a deficit to a surplus in December. Export growth outpaced imports and cheaper oil prices helped to narrow the nation’s current account deficit.
According to the report released by the South African Revenue Service (SARS), the data showed that the nation’s trade balance changed from a revised deficit of R5.27 billion in November to a surplus of R6.8 billion in December. The size of the surplus surprised the markets and supported the Rand throughout the weekend.
‘The surprisingly large improvement in South Africa’s trade balance in December underlines the degree to which the country is benefitting from lower oil prices,’ said Capital Economics Arica economist John Ashbourne.
Also supporting the South African Rand was the release of the latest seasonally adjusted Kagiso PMI, which rose by 4 points to a reading of 54.2 in January. The figure was higher than the preceding month’s figure of 50.2 and beat economist expectations for a drop to 48.91. On an unadjusted basis, however the PMI declined from 51 to 48.2.
Economists are now forecasting for the Rand to strengthen over the coming months.
‘We have become less bearish about the Rand because the accommodative global backdrop is helping to rekindle the foreign appetite for South African bonds and keep a lid on currency volatility; lower oil prices and an improved gold price have bolstered SA’s terms of trade situation; and our valuation metrics suggest that the Rand is heavily oversold,’ said Barclay’s.
GBP Forecast to Regain Ground
The Pound Sterling is set to regain ground against the Rand and other major peers following the release of data, which showed that manufacturing activity in the UK, grew at a faster pace than forecast in the first month of the year.
According to Markit, its Manufacturing PMI rose to a reading of 53.0 from 52.7 in December and beat economist expectations for a figure of 52.6.
Factories were shown to have cut prices by their fastest pace since 2009, suggesting that inflation will remain weak and in turn cause the Bank of England to refrain from raising interest rates until early next year.
‘Expect volatile, choppy trade to continue, with focus on today’s global PMI figures and Friday’s US non-farm payrolls report,’ said RMB currency analyst John Cairns
