Rand could test R14 vs the dollar
The rand continued to trade in a narrow range on Wednesday morning, ahead of finance minister Tito Mboweni’s first Medium Term Budget Policy Statement (MTBPS).
“The Mid-Term Budget Speech is upon us and this could give some clarity and direction for the rand in the short term,” said dealer at TreasuryOne, Andre Botha.
“Judging by the rands’ performance overnight the expectation is that the market expects a speech that will take the road less travelled and start the road to recovery by signalling better fiscal management in the future. However, there is a word of caution here as this could be a situation of the cart leading the horse and we could have a knee-jerk weaker should the market not be pleased.”
What to expect from the mid-term budget speech?
“Firstly, we will get some greater clarity on the proposed stimulus package. Secondly, it will give minister Mboweni, albeit only being in the job for two weeks, to show his hand in how he will return confidence to the public in the workings of government and not put further strain on an already overextended tax base,” said Botha.
“Thirdly, SOEs need to be addressed and the way that they will be managed going forward. Fourthly, the speech will need to appease rating agencies, which we expect it to do, but there is cause for concern given that Moody’s indicated it will await the outcome of the speech before they announce their decision.”
Even though not a lot can be changed in a Mid-Term Budget Speech, the foundations can be laid for next year’s Budget Speech and better fiscal management, TreasuryOne said.
The group said that it expects the rand to trade in the current range up until the speech and will react quickly thereafter. “There is a slight bias to the rand testing R14.00 again, but there is enough uncertainty that a knee-jerk higher cannot be ruled out.”
“South Africa’s new finance minister will probably announce further fiscal tightening,” John Ashbourne at Capital Economics said in a note, reported by Reuters.
“This will likely placate ratings agencies, but supports our view that economic growth will remain weak.”
Shortly after 11h00, the rand traded at the following levels against the major currencies:
- Dollar/Rand: R14.22 (-0.08%)
- Pound/Rand: R18.40 (-0.70%)
- Euro/Rand: R16.25 (-0.48%)
Mboweni, meanwhile, took to social media early on Wednesday to thank South Africans for their contributions following an earlier request for ‘Tips For Tito’ on the social network.
On Wednesday, October 24, 2018, MTBPS day, I will acknowledge ALL those who gave Tips For Tito on Twitter. Great contributions! Thank you! God bless you. God bless South Africa! God bless Africa! 💪🏿💪🏿
— Tito Mboweni (@tito_mboweni) October 23, 2018
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