SOUTH AFRICA

The Rand has weakened in the last few weeks as the global recession strengthened its choke hold on the South African economy. From its 9 month high in the first week of June, it has weakened to more familiar levels around 8.25 against the USD as of 23/6/9.

The recession extended into the second quarter in SA and many banks are now expecting profits to be down and admitting that they’re operating in “challenging times”. Retail sales and manufacturing dropped to record lows and it was expected the Reserve Bank will again cut interest rates on Thursday the 26th of June, but it announced that interest will remain the same, causing the Rand to strengthen.

Whilst emerging markets crumble, investors are flocking to the safe haven currencies of the USD and Yen causing higher yielding currencies such as the NZD, AUD and ZAR to weaken. Analysts’ forecasts for the dollar are the most scattered in two years, pushing up currency price swings and threatening gains in emerging-market trading. The weaknesses in markets were spurred on by a World Bank report forecasting that the global economy will contract by 2.9% and that Chinese imports are falling.

Let’s briefly look at the main factors that affected the ZAR over the last week:

- The ZAR holds a 7%+ yield advantage against other currencies. This makes it attractive to buy and hold ZAR.
- No rate cuts caused ZAR to strengthen.
- Recession in SA entering second quarter.
- First trade surplus in 2 years helps the Rand.

An unexpected trade surplus (first one in 2 years) caused the Rand to make a huge come back on Tuesday. This and the carry trade appeal boosted the Rand to a 10 year high.

View for the week: The sangoma is still feels the ZAR will weaken, especially however better figures in SA is pointing the other way. It should, however, not be forgotten that SA is in a recession...

Good luck for the week ahead.

Exchange4free FX Dealers : 0207-858-1039

- Book a live exchange rate online
- Great exchange rates
- No transfer fees
- Zero commissions

www.exchange4free.co.uk