Published: October 11th, 2021
British travel services firm FairFX released figures last week showing a sharp rise in travel money orders for South Africa, as well as America and the United Kingdom. The spike in orders has been prompted by the easing of global travel restrictions, the company said.
The data shows that customers are gathering more cash for travel and topping-up pre-paid travel debit cards ‘as air and rail travel opens up again and the US and South Africa re-establish themselves as top travel destinations.
Washington announced in early October that foreign travellers would be allowed to visit the country again starting from November. South Africa has reopened to foreign travel, though in some countries like the UK, it remains on the ‘red list,’ in other words, a country where any traveller arriving or returning from may be subject to strict quarantine rules.
FairFX said that there has been rising speculation that the UK Foreign Office will soon remove South Africa from its red list, with an announcement due this week.
Last week, South Africa’s president, Cyril Ramaphosa, told The Sunday Times (Johannesburg) that he has personally asked UK prime minister Boris Johnson to take South Africa off the UK list.
‘We are hopeful the outcome will be positive when UK scientists review the international travel situation again in the coming days,’ Ramaphosa said.
In addition to the expected end of flight restrictions, FairFX has also noted an uptick in inquiries from Brits about South African travel destinations, with a 40 per cent rise in pre-paid ZAR debit card deposits over the past fortnight alone.
FairFX CEO Iain Stafford-Taylor told Bloomberg that the firm had seen a sudden increase in orders of South African rand ‘as well as US dollars in the last two weeks. Based on previous experience, this tells us UK holidaymakers are ready to look beyond destinations in Europe and once again consider visiting places they’ve been denied access to since the pandemic landed.’
There has also been a nine per cent increase in pre-paid USD card top-ups, alongside a 30 per cent in people exchanging pounds and euros for greenbacks.
Demand for Swiss francs has jumped ten per cent, and FairFX said euro pre-paid travel cards top-ups have increased by six per cent.
Stafford-Taylor added that he’s encouraged to see ‘the appetite for travel returning,’ even amid ongoing uncertainty about the COIVID-19 outbreak.
An investor note from Commerzbank’s forex unit echoed the positive news from ZAR, saying the South African Rand may be entering a period of strength where additional advances could be seen against the euro, greenback, and sterling.
A period of weakness experienced in September looks to have ‘run its course,’ Commerzbank said, potentially encouraging ZAR investors into buying mode.
While that potential scenario unfolds, the bank’s forex analysts say they expect to see further sideways trading below the August high this week.
Despite the apparent good news for rand bulls, an analysis from Reuters suggests ZAR may be in for a tough three months as the year draws to a close.
‘The often volatile rand could find itself tossed about by rough economic waters through the last quarter,’ said the analysis published last week, ‘with risk appetite being dulled by several factors.’
Reuters noted that last week saw concurrent falls in emerging market currencies, commodity currencies like AUD and CAD, as well as global stock markets. Falling investor sentiment made September's existing losses intros assets worse.
The duration of those declines could heavily influence rand price action in the coming weeks and months.
‘With China’s growth protests wobbling, investors are treading carefully against worries about tougher regulatory measures and stricter debt rules for speculative investments’.
The biggest headache for forex traders, Reuters says, is the continuing surge in global energy prices, which have raised the possibility of high inflation over an extended period.
That’s prompted fears that central banks may find themselves compelled to raise interest rates and stop higher inflation from entrenching itself in the medium term. The worry amongst investors is that raising interest rates could cool further growth.
Forex traders, in particular, will be looking for scenarios where inflation growth begins to slow in the face of inflation headwinds. There has even been speculation that 70s-style ‘stagflation’ could be making a comeback.
Federal Reserve chair Jerome Powell is expected to tell US senators this week that he believes inflation will remain elevated for a longer timeframe than the central bank had anticipated.
The statement will serve in part to justify the Fed’s signal last week that its monthly quantitative easing programme would start tapering off in November.
‘The increasingly hawkish tone from the Fed on taper timing is another decisive factor for risk markets,’ said the Reuters analysts. ‘As speculation mounts about the exact date of a tapering move, ZAR’s volatility will only increase. ‘
Under the analysis, Rand faces a mixture of adverse conditions. The country’s economy is already sensitive to crude oil and other file-related costs. As Brent crude heads for USD 80 per barrel again, the economic impact could curb South Africa’s growth.
Rising US bond yields are another factor that could make global financing more expensive and cause the greenback to appreciate, a negative development for emerging market fiats like ZAR.
Domestic politics could create other issues, Reuters said, as parties publish their policy platforms ahead of upcoming municipal elections in November.
According to Reuters' technical analysis, the dollar-to-rand exchange rate (USD/ZAR) is in a period where rises are likely to occur. 'While there may be corrective action, there could well be a return to August’s 15.3948 high before the end of October.
Despite the downbeat assessment, Reuters does note that the extended picture could offer rand bulls a sizeable recovery next year or into 2023. The final months of 2021, however, ‘are likely to be tough.