Morning Briefing: South African Rand Under Pressure as Foreign Investors Flee

Source: Forex News

Earlier today, the Bank of Japan (BOJ) delivered its interest rates decision. As expected, the bank left interest rates unchanged and committed to doing more if the world economy led to major disruptions in the Japanese economy. The bank said that interest rates will likely remain unchanged “at least through spring of 2020”. It will also continue with quantitative easing, which involves buying of Japanese Government Bonds, ETFs, and REITS. Before the rates decision, the country reported that the unemployment rate declined to 2.3% in June. However, industrial production has declined by -3.6%.

Today, the market will be paying
attention to South Africa. The country has been in crisis, which was caused by
the inefficiency and high debt of the main power supplier, Eskom. This has
forced the government to intervene, with the goal of saving the company and
ensuring that the residents are supplied with power. According to Bloomberg,
overseas investors are exiting the country in droves. This year, they have sold
South African equities and bonds worth more than $4.8 billion. In the entire of
2018, they sold stocks and bonds worth more than $1.7 billion. This year’s exit
is the biggest decline since 1998. Credit rating companies have started to
lower the country’s credit score. On Friday, Fitch cut the credit rating of the
country to negative while Moody’s has warned on the impact of government
intervention. The country will release its unemployment rate data later today.

Later today, the European
Commission will release a series of consumer and business surveys. The
industrial sentiment is expected to have declined by -7.0 in July. The services
sentiment is expected to have declined from 11 in July to 10.6. Consumer
confidence is expected to have remained unchanged at -6.6 while the business
and consumer survey is expected to have declined to 102.6. Meanwhile, Germany
is set to release its CPI data. Elsewhere in Europe, Sweden released its GDP
numbers for the second quarter. The data showed that the economy expanded by
just 1.4% in the quarter. This was much lower than the Q1 growth rate of 2.1%
and the consensus estimate of 1.9%.  This
led to the USD/SEK pair to jump as shown below.

Later today, the United States will release personal income and spending data. In June, personal income is expected to have grown by 0.4%, which was slightly lower than the previous 0.4%. Personal spending is expected to have declined to 0.3% from the previous 0.4%. The PCE deflator is expected to have remained at 1.7% in the month. This data will come a day before the Federal Reserve is expected to release its interest rates decision. Investors expect the Fed to slash interest rates. The chart below shows the performance of the dollar index.

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