PMI data published on Friday showed South Africa’s manufacturing sector remained in the doldrums in April, languishing in contraction for a sixth consecutive month as feeble demand, global trade tariffs, domestic political turmoil, and torrential rains pummelled the industry. Factories grappled with weakening orders and shrinking exports, prompting redundancies as businesses scaled back to weather the storm. Soaring costs for imported materials, a fluctuating rand, and fresh power cuts deepened the malaise, while fears of tariffs spurred stockpiling and strained supply chains. Optimism for the sector’s future waned, with manufacturers bracing for prolonged woes amid policy uncertainty and lacklustre global markets. Conversely, vehicle sales data provided a glimmer of hope, buoyed by a temporary surge in consumer spending from pension fund withdrawals. Heavy lorries and passenger cars drove the uptick, though export markets faltered amid looming global trade frictions. Yet, this fleeting spark of demand risks fizzling out, with economic headwinds and the fading boost from one-off factors threatening to stall progress.
It will be a quieter week ahead on the local data front, with the most significant data being the latest round of the manufacturing production figures for March, due on Thursday, and the all-economy PMI for April, due on Tuesday. Most of the market’s focus will instead be externally focused, with the US Federal Reserve and Bank of England set to announce policy updates on Wednesday and Thursday, respectively. The Fed’s decision is arguably the most important, and markets anticipate that the US central bank will keep its monetary policy unchanged. With equity markets having recovered, the urgency to ease monetary policy further is not there. However, while the Fed might not reduce interest rates at this meeting, they may cut back further on quantitative tightening or pause it altogether as the FOMC members wait for the dust to settle on the recent tariff announcements.
ZAR Markets
The rand enjoyed a strong end to last week, riding a wave of risk-on trade to appreciate to its strongest levels since the beginning of April. Notably, the USD-ZAR broke through the 76.4% Fibonacci retracement level of its early April uptrend at 18.4575, which had been a strong support level. The ZAR bulls will now be targeting a full retracement of last month’s ZAR selloff to the R18.0000/$ handle, but will need to contend with support levels around 18.2700-18.3000 in the coming sessions. However, momentum is to the downside for the USD-ZAR as the ZAR plays catchup to a broader EM FX rally after GNU uncertainties paused this a month ago. The rand also remains slightly undervalued, meaning a broad-based improvement in market sentiment could see it recover towards fair value.
Global FX Markets
The U.S. dollar weakened on Monday due to a strong rise in the Taiwanese dollar, which gained over 3% to a two-year high, fueling speculation that some Asian countries might be engineering currency revaluations to gain U.S. trade concessions. The Chinese yuan also hit a six-month high, with investors betting on a stronger yuan amid potential U.S.-China trade talks, though negotiations remain distant. President Trump reiterated his belief in a possible China trade deal but provided no specifics. He also expressed a desire for lower interest rates but confirmed he would not try to remove Federal Reserve Chair Jerome Powell. The Fed is expected to keep rates steady following a strong U.S. jobs report, with markets now seeing a lower chance of a June rate cut. The dollar struggled to maintain gains, with the euro and yen seeing slight increases. Investor trust in the dollar is shaken due to U.S. policy swings and pressure on the Fed, with many betting on further dollar weakness. Upcoming economic data, like the ISM services survey, and central bank meetings in the UK, Norway, and Sweden will influence markets. The Australian dollar held firm after a Labour party election win.