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Can the South African rand maintain strong momentum? |
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28th Jul 2020

Can the South African rand maintain strong momentum?

The South African rand gained against the US dollar mostly due to the weaker dollar. The strong inflows into the South African market also played a role. The biggest news of the week was the decision by the country’s central bank to slash interest rates to 3.5% from 3.75%. It has now eased by 300 basis points this year. Elsewhere, the US dollar declined against key currencies as the rising number of coronavirus cases in the country led to calls for more stimulus. In Europe, the euro surged after European leaders agreed to a landmark €750 billion recovery fund package.
This week the South African rand performance will depend on external factors like the Fed interest rate decision. Still, there will be some important economic data from the country. On Wednesday, the bureau of statistics will release the June inflation numbers.  

Analysts polled by Reuters expect the headline CPI will drop to -0.5% while the core CPI will increase to 3.2%. In its rate decision, the central bank said it expects inflation will remain muted this year. On Thursday, the bureau will release the factory-gate inflation data.
The Fed will be the “only game in town” this week as it delivers its monthly rate decision. The FOMC will start its meeting on Tuesday and deliver its rates decision on Wednesday. Analysts expect that the bank will leave the rate unchanged at the current range of between 0% and 0.25%. They also see it continuing with its open-ended quantitative easing program.  

This decision will come at a challenging time for the American economy. The number of coronavirus cases is rising and the number of people applying for jobless claims has started to rise. At the same time, divisions in congress make it challenging for a new stimulus package.
The price of crude oil remained at multi-month highs last week as traders remained optimistic about rising demand. The price ignored the rising inventories from the US and increasing tensions between the United States. Last week, data from the Energy Information Administration (EIA) showed that inventories rose by more than 4 million barrels after dropping by more than 5 million barrels in the previous week. On Wednesday, the EIA will release the weekly inventories data.  

In addition, the price of crude oil will depend on the economic data from China and the US. On Thursday, the Bureau of Labour Statistics will release the US Q2 GDP data. Analysts expect that the GDP declined by more than 32.6% in the second quarter. On Friday, China Logistics will release the manufacturing and non-manufacturing PMI numbers.
The euro has been on an upward trend in the past five consecutive weeks. Last week, it moved to the highest level since 2018 after the EU passed the landmark recovery fund. With the fiscal aspect done, investors will now focus on the upcoming data from the region. On Friday, Eurostat will release the preliminary Q2 GDP data. Analysts expect that the economy contracted by 13.9% in the second quarter. Eurostat will also release the flash July CPI data. On Thursday, we will receive the bloc’s unemployment rate, industrial and services sentiment and consumer confidence.
The economic calendar will be a bit busy this week, unlike last week. Other economic numbers we will receive include the Australian CPI data that will come out on Thursday, Mexican unemployment rate that will come out on Wednesday, and Japan’s industrial production data. Further, we will receive corporate earnings from companies like Facebook, Google, Mastercard, and Pfizer.