Headlining the local data card today are Q4 labour market stats. Recall that South Africa’s official unemployment rate declined in Q3 2024 to 32.1% from 33.5% in Q2, along with an improved expanded (incl. discouraged work seekers) rate of 41.9% from 42.2%. Employment creation in the informal sector is outpacing formal sector employment; however, informal sector employment tends to be more poorly paid and less secure. Overall, despite the slight improvement in Q3, SA’s unemployment remains near the highest globally due to the structural headwinds that years of poor governance have exacerbated. Thus, while we could see a seasonal improvement in unemployment in Q4, the broader trend will remain one of extremely high unemployment until economic growth exceeds the current paltry forecasts of 1% to 2% per annum.

Notwithstanding the economic and political importance of the labour market stats, they will likely hold only limited market-moving potential. The spotlight instead remains on tomorrow’s budget speech. Against that backdrop, it is noteworthy that the IMF commented on SA’s need to reduce debt for faster economic growth. South Africa’s past inability to live within its means has driven debt-service costs above a fifth of government revenue, limiting resources for health care, education, and policing. This fiscal strain has also hindered efforts to boost economic growth, which has averaged below 1% per year over the past decade. “South Africa’s persistently weak growth and relatively high average interest rate, together with large fiscal deficits, have contributed to the rapid rise in public debt,” Tidiane Kinda, the IMF’s resident representative to South Africa, said. “So having reforms that will, at the same time, boost growth and address fiscal challenges is critical,” she added.  Steps it could take to achieve this include wage discipline, accelerating reforms at struggling state-owned enterprises and tighter control of government procurement, the Washington-based lender said.

ZAR Markets

The USD-ZAR remains rangebound ahead of this week’s budget speech, with investors hesitant to take significant positions. While global developments have influenced the USD, the impact on the ZAR has been minimal. This will likely remain the case today, meaning the USD-ZAR may consolidate with some topside drift today. The rest of the week’s performance still hinges on the contents of Finance Minister Godongwana’s budget speech tomorrow.

Global FX Markets

The U.S. dollar remained near two-month lows on Tuesday as traders weighed concerns over tariffs and the future of interest rate cuts. The Australian dollar dipped slightly after the Reserve Bank of Australia cut rates by 25 basis points to 4.1%, marking its first easing since 2020, though it remained cautious about further reductions. Investors are now focused on the upcoming Federal Reserve meeting minutes to assess policymakers’ views on trade risks, especially following January’s inflation data, which suggested no urgency for rate cuts. Analysts expect the Fed to hold rates steady in the first half of the year, with potential cuts in late 2025, though markets are pricing in more modest easing this year. Elsewhere, the Japanese yen held firm at 151.61 per dollar, supported by strong GDP growth and inflation data, fuelling expectations of a Bank of Japan rate hike in July. The dollar index edged slightly higher but stayed close to its recent low, while the euro and British pound remained stable. Meanwhile, the New Zealand dollar fell ahead of the Reserve Bank of New Zealand’s expected 50-basis-point rate cut on Wednesday