By the close of trade on Thursday, the South African rand weakened against the US dollar.

  • The South African Reserve Bank (SARB) surprisingly slashed the repo rate 25-basis-points, its first change since July 2019. The central bank cut its gross domestic product (GDP) forecast for 2020 and 2021 to 1.2% and 1.6%, respectively and revised its inflation forecast significantly lower to 4.7% in 2020 and 4.6% in 2021.
  • The Senate passed a new North American trade deal Thursday, sending one of President Donald Trump’s top priorities to his desk for ratification. The GOP-held chamber approved the United States-Mexico-Canada Agreement in an overwhelming 89-10 vote. After Trump signs the three-nation pact, it needs only Canada’s approval to take effect
  • In the US, retail sales rose for the third straight month in December, suggesting that the economy maintained a moderate growth pace.
  • The number of people filing claims for unemployment benefits dropped for the fifth straight week during the week ended 10 January, indicating a robust labour market.
  • The Philadelphia Fed manufacturing activity index surged in January.
  • The yield on benchmark government bonds ended mixed yesterday. The yield on 2020 bond ended steady at 6.94% while that for the longer-dated 2026 issue fell to 8.19%.

In early trade on Friday, the US dollar is trading marginally lower against the South African rand at R14.4129, while the euro is trading 0.1% lower at R16.0451.  The British pound has declined 0.1% against the South African rand to trade at R18.8444.

By the close of trade on Thursday, the euro declined against most of the major currencies.

  • Meanwhile, the European Central Bank’s (ECB) December monetary policy meeting accounts indicated that the policymakers took a more upbeat view on economic developments in their meeting but continued to see an abundance of risk that warrant ultra-easy policies.
  • German consumer price index (CPI) remained steady on an annual basis in December.
  • UK PM Johnson Spokesman says Transition period for Brexit will not be extended further.

In early trade on Friday, the euro has marginally slipped against the US dollar to trade at $1.1132, while it has marginally weakened against the British pound to trade at GBP0.8514.

The Big Mac index has become a global standard, which is featured in economic textbooks and dozens of academic studies.

The latest Big Mac index shows that most currencies lost ground against the dollar over the past six months. Only the Swiss (+18%) and Norwegian (+5%) currencies are now overvalued against the dollar. The euro (-19%), the Australian dollar (-21%) and the British pound (-22%) are all undervalued.

A decade ago, the rand was trading at R8.28 to the dollar and the Big Mac index found that it was “only” undervalued by 39% against the dollar.  Since then the currency has weakened substantially and is now trading around R14.40/$.