USD/ZAR FUNDAMENTAL BACKDROP

The South African rand looks for its third straight day of gains against the U.S. dollar after Friday’s US Core PCE Deflator release missed estimates. In what would have been a relatively muted trading day today as the US celebrates Independence Day, China’s Foreign Ministry stated they would look to restrict certain chip making materials including gallium and germanium. These two little known substances could have major upside for the local currency as South Africa is one of the biggest germanium producers globally and gallium is produced in aluminum production (a capability South Africa holds). The demand for these materials would in theory rise in accordance with the Chinese decision to limit exports and should increase the demand for the rand. Other major South African commodity prices are trading higher today including gold and iron ore on the back of a weaker USD and with no significant economic data scheduled for today, I do not expect much in the way of price volatility before tomorrow. Tomorrow’s calendar (see below) begins with South African S&P PMI data which could track lower following the ABSA release yesterday. The primary focus will be the FOMC minutes and the thought process behind its members to keep rates on hold