21 Aug 2017

Week Ahead: CPI inflation to have decelerated in July on lower contributions from the food, petrol and electricity components

Annabel Bishop

Chief Economist

Political developments, pertaining to the dissolution of President Trumps business councils, as well as the perceived dovish bias in the Fed FOMC minutes covering the 25-26 July meeting weighed on the US$ index during the course of the week.

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Geopolitical tensions between the US and North Korea eased somewhat this week. These various considerations lent support to most emerging market currencies, with the rand strengthening over the course of the week by 1.4% to 13.22/US$ presently. In the year to date the rand has appreciated by 4.0%.

Broadly, the backdrop for emerging markets remains favourable in view of the positive momentum in global growth and global trade as well as expectations of a gradual pace of monetary policy normalisation by the major central banks. Emerging markets have experience foreign portfolio net inflows for eight consecutive months to July 2017. Net inflows to emerging markets have mainly been into bonds which continues to reflect the attractiveness of more competitive higher yields. SA has attracted R40.3bn in bond net inflows so far this year, compared to the net outflow of R26.1bn in 2016.

The rand is expected to trade in a range of R13.70/USD – R12.70/USD, R16.00/EUR - R15.00/EUR and R17.55/GBP - R16.55/GBP.

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