Key Points
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Gold’s strength lifts the rand, boosting confidence.
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Inflation data next week could sway further moves.
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Markets watch gold and inflation keyphrase for direction.
On Thursday, the South African rand got stronger as gold prices rose.
This was because investors around the world were buying gold because they were worried about global growth and geopolitical tensions.
The rally boosted the value of the local currency just before important domestic inflation data comes out next week. These numbers could affect the South African Reserve Bank’s policy in the coming months.
The rand was trading at about 18.52 to the dollar in late Johannesburg, which is close to its highest level in two weeks. The main reason for the gains was the rise in gold prices to near-record highs, which was caused by safe-haven demand and a weaker U.S. dollar.
The price of gold affects the rand’s movement
The value of South Africa’s currency often goes up and down with the price of gold, which is one of the country’s biggest exports. Traders said that rising gold prices made them more optimistic about the rand because they thought it would bring in more money from exports.
Lerato Maseko, an analyst at Joburg-based First Capital Markets, said, “The gold rally is a tailwind for the rand, and we’re seeing foreign inflows pick up a little.” “Next week, when inflation data comes out, will be the real test for the currency.”
Economists think that the consumer price index for July will show that inflation is slowing down a little from June’s 5.4 percent, moving closer to the central bank’s 4.5 percent midpoint target. But any good news could keep interest rates high for a longer time.
Investors are paying close attention to inflation data
According to a report by Vanguard news, the South African Reserve Bank has kept rates at 8.25 percent, which is the highest level in 15 years, for more than a year because prices keep going up.
If inflation goes down, people might start to think about a rate cut before the end of the year. If it goes up, though, the bank might stick to its cautious stance.
The rand will also be affected by trends in the global market in the next few days.
This week’s release of the U.S. Federal Reserve’s minutes showed that policymakers are still split on when to cut rates. At the same time, geopolitical risks are keeping demand for gold as a safe haven high.
Risks could limit the currency’s upside
Analysts say that the rise in gold prices is good news, but problems with South Africa’s economy, like rolling power cuts and slow growth, could keep the rand from going up too much.
Maseko said, “The inflation data is important, but the overall situation for the rand is still weak.”
For now, traders seem happy to go along with the gold-driven momentum. But with inflation numbers coming out soon, the rand’s next big move will probably depend on whether price pressures go down or up.
