31 Jan – ZAR Ends Week Stronger as SARB Cuts Rates, Gold Hits Record High

Daily Market Report 31 Jan

ZAR Ends Week Stronger as SARB Cuts Rates, Gold Hits Record High

Key Developments

  • SARB Cuts Rates by 25bps:
    • The repo rate drops to 7.50%, prime lending rate to 11.00%.
    • The vote was split (4-2), showing a cautious stance.
    • Inflation risks are tilted to the upside, and global uncertainty influenced the decision.
  • US Fed Leaves Rates Unchanged:
    • The FOMC kept rates at 4.25%-4.5%.
    • The tone was hawkish, with no rush to cut rates due to strong US demand and Trump’s tariff risks.
    • Markets expect two Fed cuts in 2025, likely starting in June.
  • Global Markets:
    • Gold hits a record $2,795/oz, driven by central bank demand, inflation hedging, and risk aversion.
    • ECB cuts rates by 25bps, with concerns about Europe’s sluggish growth.
    • Toyota warns of deindustrialization risks in SA, calling for policy reforms.

Market Insight – FX

  • ZAR Performance:
    • Spot: 18.5400 | Range: 18.4175 – 18.6850
    • Gold’s rally and improved SA terms of trade support ZAR.
    • Despite the rate cut, the ZAR remains resilient due to its undervaluation and positive risk sentiment.
    • Key support at 18.5300, with a break lower targeting 18.4175.
  • Global FX Trends:
    • USD Index consolidates ahead of PCE inflation data.
    • EUR/USD falls below 1.0400, pressured by ECB rate cut and trade war concerns.
    • GBP/USD supported above 1.2400, as UK policymakers focus on growth.
    • USD/JPY steadies, with BoJ signaling further tightening in 2025.

Market Insight – Fixed Income

  • US Treasuries:
    • Yields fell as the ECB cut rates, but strong US data limited declines.
    • 10-year yield dropped 4.5bps to 4.51%, while 2-year yield fell 1.9bps to 4.207%.
  • SA Bonds & FRAs:
    • Bonds remain stable, as SARB’s decision was priced in.
    • Treasury budget surplus (+R21.4bn) provides room for policy maneuvering.
    • ILB auction today (I2033, I2043, I2058) to gauge inflation expectations.
    • FRA curve prices in one more rate cut this year, but SARB will pause to assess risks before further easing.

Outlook

  • ZAR’s performance will depend on global sentiment, US inflation, and trade risks.
  • Trump’s tariff decisions on Feb. 1 could impact markets.
  • The SARB may remain cautious, waiting for budget clarity and external risks to unfold.

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