South African Rand Faces Pressure over Deficit Trade Data
South African rand traded slightly stronger in yesterday’s afternoon session but is facing mounting pressure now from a broadly stronger US dollar, First National Bank said in a brief on Wednesday.
The local unit fluctuated after South Africa’s trade balance moved into deficit in May, recorded at -R1.79 billion, compared with a surplus of R15.16 billion in the previous month, marking a sharp deterioration in the monthly external trade position.
The shift implies that the value of imports exceeded exports during May, reversing April’s surplus. The figures are reported in rands and reflect the net balance of goods trade for the month.
The poor trade figures are likely linked to falling commodity prices, which form a large part of South Africa’s export revenue. The basket price for platinum group metals has fallen by over 4% in June alone.
Local traders are monitoring the outcome of anti-immigration protests while digesting a sharp miss on South Africa’s May trade balance and rising inflation expectations.
The rand is changing hands at R16.42 to the dollar, R18.73 to the euro and R21.70 to the pound, First National Bank said in its note.
Gold is trading at $3 978/ounce amidst US, Iran talks. The yellow metal traded rangebound on Tuesday but is weaker this morning as easing concerns over a major disruption to Middle East energy supplies reduced demand for safe-haven assets.
Market sentiment is supported by ongoing US-Iran diplomatic engagement, prompting investors to rotate away from defensive positions. Oil prices have stabilised around $73 after recent volatility linked to developments in the Middle East.
Market participants continue to monitor US-Iran peace talks and the flow of crude through the Strait of Hormuz, with signs of easing supply concerns helping to keep prices contained.
The unexpected swing to a trade deficit is a significant bearish signal for the South African Rand, according to forex traders.
This indicates that more money is flowing out of the country to pay for imports than is coming in from exports. We should anticipate downward pressure on the ZAR in the near term.
Traders said they are positioning for a weaker rand by looking at USD/ZAR call options. The currency pair has already climbed towards 18.90 in recent weeks, and this data provides a fundamental reason for it to test the 19.00 psychological level. This move is supported by a broad-based strengthening of the US dollar globally. Stronger US Dollar Keeps South African Rand on Edge
