Currency Impact Report
FX Impact: Labor Strife Hits S. Africa Rand
October 08, 2012
The crumbling of the South African rand amid ongoing labor strife in the country’s mining sector was front and center in currency markets last week, according to IndexUniverse ETF Analyst Ugo Egbunike. In the five days ended Oct. 5, the rand got knocked down almost 5 percent against the dollar
Egbunike, in his weekly chat with IndexUniverse.com Managing Editor Olly Ludwig, also stressed that financial markets are again optimistic about Europe following the European Central Bank’s announcement that it was ready to implement the bond-buying program it promised in September. Local European equity markets rose and, as our weekly “Currency Impact Report” shows, so did the euro against the dollar, helping returns for U.S. investors.
Ludwig: It looks like South Africa was a big story last week.
Egbunike: U.S investors in South Africa definitely took some hits, and that’s a result of the labor issues and mining strikes going on there. A total of 12,000 employees were just dismissed, and the rand has taken a huge hit as a result. It was at a four-month low against the dollar as of Friday.
Ludwig: And who knows where that goes.
Egbunike: That’s right.
Ludwig: Now the euro, on the other hand, helped U.S. investors.
Egbunike: Absolutely. The euro is near a two-week high, and it’s a result of Mario Draghi’s promise that the ECB is prepared to buy bonds of nations within the eurozone that are in trouble. They announced this program a few weeks back, and now they've announced they’re actually ready to start doing it. So, regarding operational necessities for the ECB to actually go out and buy bonds, it’s ready to go now.
Ludwig: Now, within the eurozone, in terms of market returns—forget about the currency move for a moment—Greece was up nearly 14 percent last week. What’s that about?
Egbunike: That’s an optimistic reaction to what the ECB’s bond-buying policies will actually mean.
Ludwig: So, there’s a sense Greece will be one of the main beneficiaries of this ECB policy?
Egbunike: Yes. Greece, Spain and Italy too. We’ll see to what extent this actually meets the needs of these countries.
Ludwig: Another theme that stuck out last week was India and the strengthening of the rupee. More of the same?
Egbunike: Yes, more of the same in India: the Indian equity benefiting from its economic reforms, and the rupee is continuing on its appreciation against the dollar. The Indian stock market has received record inflows so far this year of about $16.2 billion.
Ludwig: Anything that’s worth mentioning in the past week?
Egbunike: I’m also looking at the Mexican peso. It’s appreciating against the dollar, and that’s really benefiting from the optimism—they’re looking at Europe and the U.S.—and the peso is definitely benefiting from the risk-on play that occurred during the week.
Ludwig: So, overall, it seems markets are at a critical juncture right now.
Egbunike: Definitely at a juncture, yes. It looks like things are going to start kicking into place with regard to monetary policy in Europe. We’ll see.
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