Rand note: ZAR/USD weakens as USD reaches parity with EUR

The rand is now trading at 17.03/USD (up from R16.97/USD on Friday), and due to the US dollar's strength, it is now almost at parity with the euro at R17.17/EUR. The local currency is not being helped by negative perceptions of both internal and foreign events.

With net flows of -R0.1bn, foreigners continue to be net sellers of SA government bonds this quarter. Last week, R4.3 billion was sold in only two days, compared to R3.6 billion throughout the course of Q2.22.

The rand often performs poorly in the second and third quarters of the year because senior traders in risk assets, such as EM currencies and portfolio instruments, frequently take summer vacations.

Fears of excessive interest rate rises, which might send nations into recession, are gradually taking the place of market worries over rising inflation, and risk sentiment on international financial markets is fragile and markedly risk adverse.

The revelation on Friday of stronger than anticipated US jobs numbers and a stable 3.6 percent unemployment rate has increased market concerns about more sharp US rate rises throughout H2.22—an additional 175bp increase, according to FOMC member projections.

The markets are generally in line with the FOMC statement since they anticipate an 185bp increase. Market participants are concerned that the rate increases, which will push the fed funds rate well over its neutral level, could stifle economic expansion.

Significant load shedding has harmed SA's domestic growth prospects, which might have a detrimental effect on state tax collections. The severe stage 4 and stage 6 power outages have reduced company productivity, and the intense pressure that unions have placed on Eskom, the state-owned electrical utility, is seen negatively from both a political and an economic one. The 2024 ANC electoral conference has increased political commotion in South Africa generally, which is likely to worry investors even more. The state capture faction of the ANC (commonly known as the RET) is using every chance to damage the reputation of the present president.