From Fed signals to BoE cuts: How August shaped the Rand

From interest rate cuts to Donald Trump's tariffs, August kicked off with a bang in the form of a relatively weak South African Rand (ZAR). The introduction of Trump's sweeping tariffs on all trading partners, particularly a 30% tariff on South African goods, put immediate pressure on the currency.

Meanwhile, across the globe, the Bank of England cut interest rates by 25 basis points, allowing the ZAR to make a relatively smooth recovery as the UK’s growth trajectory slowed with a dovish policy outlook.

NFP report: A shaky start to the month

With August beginning on a Friday, the US Non-Farm Payrolls (NFP) report was released, setting the tone for the month. The NFP figure of 73,000 new jobs, though lower than the expected 110,000, was overshadowed by the significant revision of June’s NFP from 147,000 down to just 14,000. This dramatic change indicated a clear slowdown in job creation and a potential risk to the US economy. Additionally, the Fed faced pressure as it may be inclined to cut rates sooner to support growth.

The NFP report coincided with the US unemployment rate increasing by 0.1%. As a result, the ZAR gained some strength, which it managed to maintain for the remainder of the month. This held throughout the middle of August, despite the release of unchanged unemployment rates for the UK and the US inflation rate remaining unchanged. While the UK's month-on-month Gross Domestic Product (GDP) for June saw a 0.5% increase, the ZAR remained relatively stable. In the longer term, however, this increase in GDP did contribute to the pound's recovery against the Rand following the earlier interest rate cut.

Sideways trading for the ZAR amid global stimulus

For the ZAR, mid-month trading was largely sideways. Commodity demand from China, boosted by targeted stimulus in infrastructure and property, supported precious metals and, by extension, the Rand. Still, caution ahead of late-month events kept market appetite subdued.

A brief relief rally: The Jackson Hole effect

The end of August was met with some volatile behaviour as we saw the brief strengthening of the ZAR over the weekend of the Jackson Hole Symposium. This came after a period of uncertainty leading up to Fed Chair Jerome Powell’s speech that took place on 22 August.

Powell spoke to the topics discussed in this report, namely the slowing job markets and inflation pressures for the US, stating that the US could see an interest rate cut as early as September. Markets were quick to respond, interpreting this as slightly dovish compared to prior expectations, and we saw a weakening in the US Dollar as investors moved into equities and riskier assets.

However, the relief rally was short-lived, as geopolitical concerns and global risk aversion quickly reasserted themselves. Looking through the UK lens, the year-on-year core inflation rate was released towards the end of August, coming in at 3.8%, its highest since April.

Global events keep investors cautious

Global headlines, including trade talks, tariff announcements, and high-profile meetings involving the US, Russia, and Ukraine, kept investors cautious throughout August. While these developments did not directly impact the Rand, they reinforced a risk-off environment that favoured the USD over higher-beta currencies like the ZAR.

Domestic challenges weigh on the rand

On the home front, the Rand continued to grapple with South Africa’s persistent structural challenges in August. Load shedding disruptions, weak business confidence, and concerns over fiscal sustainability kept investor sentiment cautious. The upcoming Medium-Term Budget Policy Statement (MTBPS) loomed large, with markets wary of revenue shortfalls and rising debt-servicing costs. While South African inflation data remained broadly within the SARB’s target band, providing some breathing room, the central bank’s hawkish bias offered only limited support as global factors dominated. Overall, domestic conditions reinforced the Rand’s vulnerability to shifts in global risk appetite.

To wrap up, here is a look at the numbers. The ZAR opened at around R24.11 to the Pound, dipped to about R23.77 mid-month, and closed at approximately R23.83. For the USD/ZAR pair, the Rand opened at R18.28 to the dollar, fell to R17.56 mid-month, and closed at about R17.65. As it often does, the ever-volatile ZAR managed a smooth recovery despite global chaos and macroeconomic pressures.

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