A combination of factors drove this strength, including an expected South African Reserve Bank (SARB) rate hike in the first quarter of 2022, strong momentum in the commodities market and feedback from the Zondo commission (enquiry into state corruption).

The SARB monetary policy meeting is scheduled for 25 January, where discussions will most likely focus on a rate hike. Analysts expect inflation to rise again during the first quarter of the year due to supply chain concerns as well as international rising food prices (not to mention the hike in electricity and fuel prices in South Africa). Inflation pressure may dominate the agenda at the policy meeting, which in turn will drive the inflation rate prospects for this year. Investors are therefore pricing in a SARB interest rate hike for the first quarter of the year. This may continue to prop up the ZAR in the medium term.

Interest rate hike. Image: Supplied

Another factor that drove strength in the ZAR during recent weeks has been the strong run in the commodities markets. The gold price has consistently impressed for the past three weeks (driven by weaker bond yields in developed economies and weakness in the USD). We have seen the same trend in other precious metals (including silver and magnesium). It should also be noted that the supply chain concerns (due to Covid restrictions) continue to contribute significantly to the price pressure of commodities. 

This week also saw the release of the Zondo Commission report on state corruption. The report outlined wrongdoing by state and private sector entities and individuals and recommended legal action against some high-ranking individuals and groups. This highlights the strong sense of political accountability and political will to fight corruption in the country and bodes well for the long-term political stability of South Africa. 

These factors continue to drive strength in the ZAR and can be expected to persist in the short to medium term. However, we have seen some international developments place a cap on this strength. A case in point is the US Fed also discussing rate hikes for the early part of 2022 and the tightening of monetary policy across the board.

Weekly market events

Tuesday 11 January

SA: Manufacturing productivity 

US: Testimony by Fed Chair, Jerome Powel

Wednesday 12 January 

CHN: Inflation rate data 

US: Inflation rate data 

Friday 14 January 

CHN: Import and export data 

UK: Balance of trade data 

US: Import and export data 

Monday 17 January

CHN: GDP Data 


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