Impact of macroeconomic announcements on foreign exchange volatility: Evidence from South Africa

14 June 2018
Publication Type: Working Paper
JEL Code: C1, F0, G0

This study focuses on scheduled macroeconomic news announcements and evaluates their impact on the volatility of the South African rand (ZAR) and US dollar (USD) exchange rate using high frequency data. The following asymmetries are studied: news items by geographical location, no-news versus surprise news announcements and positive versus negative news announcements. We make the following findings in our empirical study: (i) After the release of a news announcement, the level of foreign exchange volatility rises. This is independent of whether the news item surprised the market or not. (ii) Both South African and US news items significantly impact USD/ZAR volatility, suggesting that the news items are being used to formulate investor expectations regarding the future prospects of the currency pair. (iii) Negative news appears to have a greater impact on exchange rate volatility relative to positive news. This result is also state dependent, as investors tend to behave differently to news depending on the economic climate at that point in time. Investor cognitive biases give rise to the asymmetric news effects on exchange rate volatility. Finally, investors do not always act in rational manner, especially when faced with multiple news items that are contradictory to each other.

Working paper 751
1 June 2018

South African Journal of Economics
22 June 2017

Related South Africa’s Cities and Growth Spatial Challenges and Policy Interventions Content

South Africa’s future will be decided in our cities
Discussion Document 14 South Africa’s cities face multiple, overlap...
Published: 23 June 2023
Discussion Document
Monitoring South Africa’s metropolitan economies: A survey of the data landscape
Discussion Document 13 Disparities in data across different metropo...
Published: 22 May 2023
Discussion Document
Cities, productivity and Jobs in SA: Problems and potential
Discussion Document 12 Cities contribute to national prosperity bec...
Published: 22 May 2023
Discussion Document
Place-based economic policies: international lessons for South Africa
Discussion Document 11 Place-based policies are designed to support...
Published: 22 May 2023
Discussion Document
What luminosity data can and cannot reveal about South Africa’s urban economies
Discussion Document 10 As novel types of data are becoming availabl...
Published: 22 May 2023
Discussion Document
Crime: A policy-oriented survey
Discussion Document 9 South Africa has a reputation for having high...
Published: 22 May 2023
Discussion Document
Virtual CDE Workshop on SA Cities and Growth
Urban economics has provided powerful insights into how the charact...
Published: 12 December 2022