Currency outlook for the week ahead and foreign portfolio flows:
The strengthening global economic outlook as well perceptions of a higher global inflation environment have been reflected in higher advanced economy long-term bond yields and rising measures of inflation expectations (see figures 7 and 8). The most recent US Fed and Bank of England monetary policy communication was perceived as more hawkish whilst the ECB is considered to be less dovish. Market-implied paths of short-term policy rates have also risen since the end of last year (see figure 9).
Risk sensitive assets were consequently affected, with most emerging market currencies depreciating over the course of the week. However, the rand is essentially flat, trading within the vicinity of levels seen at the start of the week. This relative resilience has been ascribed to domestic political developments pertaining to market expectations that President Zuma could resign, and that the new leadership will implement the required reforms to bring the economy onto a sustainable growth path.
In the week ahead, the rand is expected to trade in a range of R11.60/USD – R12.60/USD, R14.30/EUR - R15.30/EUR and R16.30/GBP - R17.30/GBP.
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