By Chris Harmse

PRETORIA – The dollar started its long expected depreciation last week. Expectations around the US elections and policies to further stimulate the world biggest economy contributed to the dollar starting to lose its value against most currencies, especially at the end of last week.

On Friday the US currency lost 1.2 percent against the pound ($1.34) and 0.70 percent against the Euro ($1.19). On opening the Jackson Hole symposium on Friday Federal Reserve chairperson Jerome Powell gave a robust updating of the Fed's monetary policy framework.

The Fed's new approach could be viewed as a flexible form of average inflation targeting, allowing inflation to run moderately above or below the Fed’s 2 percent target for some time. This means that interest rates could be left lower for a longer period despite a rise in inflation. This gave a spark for the dollar to move weaker, a step that many US policymakers would like to happen.

The effect of the Powell presentation on the South African markets was that the Rand appreciated strongly against the dollar, euro and pound last week. Against the dollar the rand improved by 54 cents to R16.57 a dollar from the R17.11 the previous Friday. Against the pound the rand improved by 40c to R22.12 and against the euro with 33c to R19.83.

On the JSE, the ALSI moved volatile last week and at one stage traded again higher than its opening level at the beginning of the year of 57 046. The index pulled back strongly on Friday to close more than 1 000 points down from its highest level for the week on 56 057.

This only 0.2 percent up for the week and only 0.6 percent for the month till date. This morning the index, after opening strongly continued to move negative as the Rand started to lose value again. At 1pm the market traded on 55 915, almost the same level (55 722) as on 31 July.

The stronger rand on Friday, as well as worries on a possible US correction, saw especially the heavy loaded rand hedger’s index namely the Industrial index to pull back with more than 2 percent. The index nevertheless ended 1.5 percent up for the week.

Gold, however, continue to trade higher and was on Monday $26 higher than a week ago. The Gold index also opened the week up by more than 0.7 and traded at noon around 1.4 percent higher. The higher than expected inflation rate of South Africa of 3.2 percent in July also contributed to the financial sector to lose 1.1 percent last week, despite the stronger Rand. Bonds also traded more than 1 percent higher.

This coming week investors will await the announcement from Wednesday to Friday of the various job data from the US. It is expected that the US unemployment to be just marginally lower during August on 9.8 percent, against the 10.2 percent the previous month as manufacturing and government payrolls are expected to have increase strongly.

Most developed countries will also publish their latest Purchasers Managers Indices (for August). Domestically, the Department of Customs and Excise will announced South Africa’s Trade account for July today. The country recorded its highest surplus since 1957 of R46.6 billion in June 2020. Absa will release its Manufacturing PMI for August on Wednesday and the latest new vehicle sales for August will also be released on Wednesday.

It is expected that rand will continue to move volatile to weaker during this coming week as the currency opened this morning again 11 cents weaker against the $ on R16.70. The oil price remains stable around $46 per barrel, as it is expected that petrol will decrease around 5 cents and diesel with 19 cents per liter from 3 September.

Dr Chris Harmse: Economist at CH Economics.

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