After touching highs of R14.40 against the dollar, the USD/ZAR pair ended the week at R14.66. Equity markets ended mostly in the red, with the Johannesburg Stock Exchange (JSE) trading lower from previous record highs.

In the US, favorable economic data helped to generate fresh demand for the dollar. Retail sales growth came in at 5.4%, suggesting that consumer spending is on the rise. Inflation rose too, providing Republicans with a renewed interest in opposing the stimulus bill. However, rising weekly jobless claims helped to support the rationale for further fiscal spending. Minutes from the Federal Open Market Committee (FOMC) meetings also indicate that the Democrats remain on course to release their proposed stimulus package.

The sterling remained on the front foot, as the UK’s vaccination progress continues to outstrip the other G7 countries. With over 16.5 million people having received their first dose of the vaccine, there are improving prospects that restrictions could be lifted sooner than expected. The Bank of England’s (BoE) hawkish stance on monetary policy has helped to further support the pound’s multi-week surge, as the GBP/USD pair reached the 1.40 mark.  

The rand traded with a topside tilt this past week, against the solid performance from major market currencies. The rand appeared to be poised for a sell-off, as investors looked to take profits on their carry trade. Yields on 2030 government bonds rose by over 10 basis points during the weekly trade, climbing for consecutive days to close at 8.177% last Thursday. Investors are preparing the National Budget Speech on Wednesday, which will outline the government’s financial plan for the upcoming year. Finance Minister Tito Mboweni has a variety of topics to address, ranging from vaccine financing to SOEs (State-Owed Enterprises) and everything in between. Investors will be particularly interested in the government’s fiscal strategy and plan to effectively restore private sector activity, whilst limiting the rapidly rising debt burden.

The rand began this week on the backfoot, as the currency continues its correction ahead of the budget speech. Yields have continued to climb this week, as 2030 bond yields rose above 9% – the highest yields seen this year. South Africans are bracing themselves for a rise in taxes, as they await further details on the government’s fiscal strategy.

Weekly market events

Tuesday 23 February

UK: Unemployment Rate (Dec)
SA: Unemployment Rate Q4

Wednesday 24 February

SA: National Budget Speech

Thursday 25 February

US: Durable Goods Orders MoM (Jan)

Friday 26 February

US: Personal Income MoM (Jan) Protection Status