A second wave and a second budget
JOHANNESBURG – The volatility in the rand subsided a little last week with the rand trading in a 30 cent range for most of the week.
The rand briefly broke above and below the R17.00/R17.30 range but for the most part, stayed in the range. The significant currency pair at the moment, the EURUSD, showed signs of a bit of US dollar strength as the US dollar ended the week trading below the 1.12 mark after starting the week at 1.1350.
The reason for the US dollar strength was mainly due to the significant market talking point at the moment, and that is the fear of a second wave of Covid-19. Much like the initial move we have seen safe havens like the US dollar and Gold enjoying the "risk-averse" notion of the market.
The same market phenomenons are again happening and with the market running for the hills as fears of a second fallout could have more severe repercussions for the global economy. The US initial jobless claims number, released last week, was worse than expected, which gives one the idea that the full effect of Covid-19is yet to be scoped.
For the week ahead, there are some interesting numbers out of the US and Europe, which could impact the markets. However, data at the moment is playing second fiddle to Covid-19, and with the global impact exacerbating data sets, it isn't easy to see the recent numbers in context.
Some of the data that will be released this week will be the PMI numbers out on Tuesday. With the second quarter coming to an end, the PMI numbers could give us some indication of the recovery we are likely to see if any recovery at all.
Other numbers out of the US later in the week will be the initial US jobless numbers on Thursday as well as inflation and GDP for the 1st quarter. The numbers towards the end of the week are likely not to cause any market disruption.
While the data calendar is quite busy this week, the market will mainly focus on the threat of the second wave of the coronavirus. The most significant concern will be the spiking numbers of new cases all over the world and especially in the US.
The market will keep an eye trained on the developments, especially news on vaccines, any spikes in infections and how the world progresses to fully opening economies and borders.
While the rest of the world focuses on the coronavirus, South Africa will divert its attention to the finance minister on Wednesday.
Finance Minister Tito Mboweni will deliver a new budget to show the effects and the path forward after the impact of Covid-19. We expect the budget to show how dire the situation in South Africa is.
The consequence of the budget could be that we will see the rand have a knee jerk reaction, but it will be news from further afield that will plot the rand's path in the medium term.
Andre Botha is a senior dealer at TreasuryONE