Robust Performance by the South African Rand

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The South African Rand was the unlikely top performer last week among the major currencies. In fact, against Sterling, the Rand traded in a 35 cent range with Sterling the net loser of 23 cents.

The Rand was able to join in the good fortune of the Australian and New Zealand dollars as they all had a good run as investors' became disenchanted with the US Dollar (due to the budget debt crisis), the Canadian Dollar (which is closely involved with the US), the Euro (because of the Greek debt crisis) and Sterling (due to perennially low interest rates). Going in the Rand’s was the small matter of it’s 55% interest rate.

South African economic indicator were also of assistance to the Rand; producer prices accelerated in June, up by 7.4% on the year and a 7.1% increase in the price of mining products. Unemployment was higher than expectations and therefore something of a disappointment, threatening to affect the 4.8% quarterly GDP growth seen in Q1. Despite higher unemployment and the likelihood that Q2 GDP will be lower, there was no lasting damage done to the Rand.

As is often the case with this currency, it is moving around a lot but going nowhere. Its position at the start of this week is identical to the one it occupied in October, November, December, January, March, April, May, June and July.

Sterling has perked up this week avoiding the negative effect of two weak figures from the Confederation of British Industry last week, probably because investors were too busy giving a collective sigh of relief when the US announced a deal to increase it’s debt ceiling.

On the UK data front, there has been an increase in the number of UK mortgage approvals and, although it was lower than forecast, the first estimate for UK second quarter GDP came out at 0.2%. Although, it was lower than hoped, it was a relief it did not turn out worse.

Overall, it is a welcome reminder that investors are affected by fiscal responsibility and AAA credit ratings, neither of which the Eurozone or US can demonstrate.

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