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USD/ZAR Fails to Break 2014 High as Gold Prices Rebound

USD/ZAR Fails to Break 2014 High as Gold Prices Rebound

Walker England, Kara Dailey,

Talking Points

  • China on track to reach 7.5% annual growth with a 15.3% increase in September exports
  • XAU increases $55 per unit over the week beginning October 6th
  • USD/ZAR weakens from 11.36 to 11.01

Overall, from January of this year the South African Rand has recovered less against the US dollar than other emerging market currencies. However, in recent days the rand has gained against the dollar on favorable Chinese export data and rebounding gold prices.

At the start of the year, a five month platinum mining strike brought the economy’s growth to a halt. Mining production was down 24.75% in Q1 and 9.4% in Q2, leading to a fall in exports and a widening of the current account deficit to 6.2% of GDP (up from 4.5%). Additionally, the industrial strike action reduced real disposable income and thus household consumption. As a result South Africa registered negative growth in Q1 (-0.6%) and low growth in Q2 (0.6%). However, the moderate growth from Q2 is expected to continue as conditions in international markets improve.

South Africa’s largest export partner, China, is on track to reach its 7.5% growth target for the year. This confirmation came today after Chinese Export data indicated a 15.3% increase in September exports, up from 9.4% in august and above the 12.0% expectation. This positive outlook on the Chinese economy could register a more substantial increase in demand for South African exports and further strengthen the rand.

Additionally, gold, which accounts for the largest share of South African exports, has experienced both a surge in export levels and price over Q2 and Q3 which in turn has benefited the rand. Exports increased 16.8% in Q2, more than offsetting the 3.0% decrease in the realized price of gold. Furthermore, an in increase in the price of gold from $1,182.67 on October 6 to $1,237.62 as of today has coincided with a weakening of the USD/ZAR from 11.36 to 11.01 over the same time period.

Daily USD/ZAR Chart with XAU/USD Overlay

dailyfx usd/zar daily chart.

Chart Created By Walker England Using MarketScope2.0

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.