This week is shaping up to be a crucial one for the rand, with several key economic events poised to influence its direction.

Locally, all eyes are on the latest inflation figures, set for release later today, which are expected to show a slight rise from 3.3% year-on-year inflation in August to 3.5% year-on-year in September. Though the increase may appear modest, it carries significant weight.

Inflation running above the South African Reserve Bank’s new 3% target suggests the central bank will be cautious about cutting interest rates too soon, opting for stability over aggressive monetary easing.

That caution is echoed by the narrowing yield gap between South African and American interest rates. If South Africa were to lower rates too quickly, local assets could lose appeal to global investors, putting pressure on the rand.

Meanwhile, markets are also watching whether South Africa will be removed from the “grey” list of the Financial Action Task Force (FATF), where it landed in 2023 over lapses in tackling money laundering and terrorism financing [the FATF is a global watchdog that monitors how countries combat financial crimes like money laundering and terrorism funding].

The FATF’s decision, expected during a meeting which is due to run from today to Friday, would bode well for the rand should South Africa be taken off the list. Still, broader economic momentum will depend largely on external factors.

Global sentiment this week is likely to be set by the delayed United States (US) inflation data this Friday, which was pushed back from its original mid-October release due to the recent US government shutdown. That, combined with delayed unemployment figures, has heightened uncertainty and volatility in global markets.

Should the US inflation number come in lower than expected, it will lead to a weaker US dollar and a stronger rand as it would signal more rate cuts by the US Federal Reserve in its next meeting, due to be held next week.

The rand is already up 1.5% for the year, now trading near R17.20 to the dollar. With the prospect of further US rate cuts ahead, The Common Sense sees scope for the rand to strengthen further in the coming weeks.