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South Africa FX 03 December 2021

FX Monthly Chart Book

Shireen Darmalingam

  • Volatility in FX markets have increased substantially in recent weeks on the back of central banks slowing down the pace of its bond buying. This type of withdrawal and expectations of tighter monetary policy will see volatility stay for a while. The Omicron variant and uncertainty around transmissibility and reduced vaccine efficacy continue to keep markets on tenterhooks. Pfizer is optimistic about virus protection of its vaccine while Moderna has indicated reduced efficacy of its jab. And it’s threatening to change governments’ and central banks’ plans of tightening policy. Several countries are implementing new restrictions as the virus spreads, which could impact economic activity ahead of the holiday season. The detection of the new strain has seen the rand fall to its weakest level in a year over the past few days to above R16.0/$.
  • Fragile global risk appetite, elevated global inflation and expectations of rate increases and weaker economic growth due to the Omicron variant has seen the rand lose 3.4% against the dollar in November, 1.0% against the euro and 0.5% against the pound. The rand traded in a range of R14.90/$ to R16.36/$ in November.
  • We see the rand remaining volatile in the final weeks of the year especially on the back of uncertainty around Omicron. The full impact will depend largely on the behaviour of this variant and the efficacy of current vaccines, as well as the geographical reach of the virus. However, a risk premium is already priced into the rand. As such, we think the rand could make some gains towards the end of the month.

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